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Microsoft: Mum's again the word on Windows 8 sales

Gregg Keizer | April 22, 2013
Company keeps Windows revenue on even keel by pushing licenses to enterprises

Microsoft made up for the slack in Windows sales to OEMs (original equipment manufacturers) such as Hewlett-Packard, Lenovo and Dell by boosting sales to enterprises.

Windows's volume license agreement revenue was up double digits, Suh said, and on track to bring in $4 billion in the fiscal year, which ends June 30. Three-quarters of all enterprise agreements -- the most comprehensive and expensive plans sold to businesses -- included Windows, he added.

"If that's true it means companies either have confidence in Windows over the next three years, or Microsoft is heavily discounting those agreements," said Rob Helm, a colleague of Miller at Directions on Microsoft.

Patrick Moorhead, principal analyst at Moor Insights & Strategy, thought the latter was responsible for the solid year-over-year growth in volume licensing sales to enterprises.

Pumping up volume license sales is relatively easy for any software maker, including Microsoft, Moorhead noted. Because software is an intangible good, all Microsoft had to do to lift revenue was offer major enterprise customers discounts to get them to sign.

"Microsoft can massage the numbers as they relate to licenses for enterprises and consumers," said Moorhead. "And that's exactly what they're doing here. The reality of the situation is that you really can't measure Windows performance from license sales. The fact is that new PCs weren't sold, so from a strategic point of view, their numbers don't hold a lot of value."

The Redmond, Wash. developer has other weapons in its arsenal, too. Along with the carrot of discounts, the company can brandish the stick of software audits -- where it investigates a customer to make sure it's licensed the proper number of devices or users -- to prod enterprises into signing new agreements.

Some analysts, including Helm, also believed that Windows revenue benefited from enterprises pushing their migrations from Windows XP to Windows 7 as the former faces an April 2014 retirement deadline.

Microsoft makes more money from selling in-place upgrade licenses to businesses than it does to OEMs, twice as much by some estimates, another possible reason the division was able to generate sales.

"Microsoft is benefiting from Windows 7 migrations to a certain extent," said Helm. "More companies are upgrading PCs that are three or four years old, that when they were bought, were downgraded to XP. And Microsoft may be giving incentives on those upgrades."

But the growth in Windows revenue from enterprise is not sustainable, Moorhead warned. At some point, Microsoft will have exhausted the supply of customers for those agreements, and failing a turnaround in PC sales and a surge in sales of Windows-powered tablets, the group's sales will stall.

"It's not sustainable in the long run," said Moorhead. "What we really need [to know] are how many Windows 8 PCs were sold and how many Windows 7 PCs were sold. That's the true demand for Windows."


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