Microsoft is prepping Wall Street for a 2% slip in Windows revenue for the third quarter and warning that PC shipments will continue their double-digit tumble.
Microsoft last week prepped Wall Street for a 2% slip in Windows revenue for the third quarter, but warned that PC shipments will continue their double-digit tumble.
"In Windows, we expect revenues to continue to be negatively impacted by the decline in the consumer x86 PC market," said Microsoft CFO Amy Hood during an earnings call on Thursday with financial analysts. "Excluding the impact of the Windows upgrade offer in the prior year, OEM revenue should account for approximately 65% of the division's revenue and should decline mid-teens."
Because sales of Windows to OEMs like Lenovo, HP and Dell historically track closely -- although not exactly -- with the number of PCs that come off factory lines, Hood essentially revealed Microsoft's prediction for the quarter ending Sept. 30: PC shipments could decline around 15% year-over-year.
By pegging PC shipments as down "mid-teens." Hood forecast a decline three times greater than the current estimate of research firm IDC, which several weeks ago said the third quarter would be off about 5% compared to 2012.
Recently, however, IDC said it suspected that its third- and fourth-quarter estimates were too rosy. The company issues monthly updates of its quarter-by-quarter PC shipment forecasts, and will probably revise its numbers downward around the end of July.
If Hood is on target, about 75 million PCs will ship in the third quarter, down from 88.3 million in the same period last year.
That would put the year on a rough pace of about 300 million PCs, a decline of some 50 million systems compared to year before, or an annual contraction of around 14%.
But the quarter could be even worse for PCs than Hood hinted: Windows OEM sales don't always match PC shipments, sometimes lagging behind several percentage points. Some of that can be attributed to non-Windows personal computers, like Macs and Chrome OS-based notebooks, but Microsoft also regularly cites China, as Hood did last week, where a significant number of machines leave factories minus an OS. Later, resellers or customers install one -- in many cases a pirated copy of Windows that generates zero revenue for Microsoft.
Windows' revenue, on the other hand, will decline by just 1.9% year-over-year, Hood said. According to the clues she gave analysts, the Windows group will post revenue of about $3.18 billion for the quarter, off 2012's third quarter's $3.24 billion.
The substantial decline in Windows OEM sales, said Hood, would be offset by revenue generated by the Surface tablets -- which, at least for now, will continue to be reported on the Windows Division's books -- and volume licensing, including Software Assurance annuity payments from large companies.
If Hood's PC prediction comes true, it would be the sixth straight quarterly contraction by the business, set a record for the sharpest single-quarter decline, and put 2013 on pace for the largest-ever shipment drop in the nearly 20 years that researchers IDC and Gartner have tracked numbers.
Microsoft has predicted that Windows sales to OEMs will drop by 'mid-teens' in the quarter ending Sept. 30, implying a decline of approximately 15% in PC shipments for the period. The column tinted red is 'Peak PC,' the third quarter of 2011, when the largest-ever number of personal computers rolled off factory lines. (Data: IDC, Microsoft.)
Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is email@example.com.
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This story, "Microsoft predicts another cruel quarter for PCs" was originally published by Computerworld.