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Windows 8, Surface Tablets to Lead Microsoft's Fight for Relevance in 2013

By Shane O'neill, CIO
January 07, 2013 01:40 PM ET

CIO - If 2012 was the year Microsoft set the table for Windows 8, then 2013 is the year the company must prove that the new OS stands out in an increasingly mobile world.

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Unfortunately, sales of Windows 8 devices have not been impressive so far, according to the New York Times, as Microsoft vies for acceptance in a market that has gone through a transformation since the PC-centered glory days of Windows XP and, more recently, Windows 7.

Data from research firm NPD cited in the New York Times story, shows that stores in the U.S.not including 31 Microsoft Stores--sold 13 percent fewer Windows devices from the time of the Windows 8 launch (October 26) through the first week in December, than in the same period last year.

Additionally, last week JP Morgan reported Surface sales of just 700,000 units in the quarter ending in December, and predicts only 2.6 million units for the fiscal year ending in June 2013. (For some perspective, Apple sold 14 million iPads in the quarter that ended in September.)

Indeed, consumer interest in tablets and smartphones as supplements or even replacements for traditional PCs has skyrocketed in the past two years.

Microsoft, all too aware of this sea change, designed Windows 8 for smooth navigation on touch-screen devices. On the smartphone side, Windows Phone 8, with its promise of seamless integration with Windows 8, is available from well-regarded hardware partners such as Nokia and HTC. Yet Windows Phone sales have been slow even with near-ubiquitous advertising. Online market tracker comScore reported last week that Windows Phone has a meager 3 percent of the U.S. smartphone market.

This all adds up to a slow-moving former juggernaut trying to reinvent itself in rapidly changing times.

Microsoft's Dependence on Office and Other Cash Cows

Microsoft still has lucrative divisions within the company that sell products in high volume to big companies through multi-year licenses. These cash cows such as the Business division (mainly the Office suite of products) and the Server and Tools division, will need to prop up the company as Windows 8 and Windows Phone fight for acceptance.

"Microsoft has two stacks of products--one stack is strong and the other is questionable," says Wes Miller, research vice president at independent analyst firm Directions on Microsoft. "Products like Xbox Live, Server and Tools, Windows Azure, Windows Server 2012 and Office 365 for businesses will make enough money this year to prop up struggling parts of the company. But Windows 8, mobile and consumer adoption remain question marks."

Veteran tech analyst Roger Kay contends that Microsoft's cash cows are, in fact, dwindling, leaving Microsoft more vulnerable than ever in 2013. Financial results for Microsoft's last quarter confirm that revenues for the Windows and Office divisions are both down year-over-year, Windows much more so than Office.

"Microsoft's main weakness is that Windows and Office are no longer growing," says Kay, adding that he is doubtful that Microsoft can still invest in newer markets while shrinking cash cows maintain the company.

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