Despite Windows 8 Availability, Enterprises Transitioning From XP To 7


If enterprises are holding off on Windows 8, they are still embracing Windows 7 as an upgrade solution, Microsoft CFO Peter Klein said Thursday.

"This quarter we saw continued progress from the transition of Windows XP to Windows 7. Now, two-thirds of all enterprise desktops are running Windows 7," Klein said on a conference call with analysts Thursday after the company reported its third-quarter earnings.

Klein didn't detail corporate acceptance of Windows 8, the successor to Windows 7 that was released six months ago.

[Related: Partners On Microsoft Azure: Success Hinges On Channel Engagement, Technology Keeping Pace]

Overall, Windows revenue was flat, but up 23 percent when including Windows upgrade offers. Klein hinted that Windows revenue from OEM PCs such as Hewlett-Packard, Lenovo and Dell declined, saying that OEM revenue was "in line with the x86 PC market, which continues to be challenged as the PC market continues to evolve from beyond the traditional PC to touch and other mobile devices."

Non-OEM Windows revenue increased 40 percent, thanks in large part to sales of Surface and continued double-digit growth in Windows volume licensing, Klein added. "Businesses continue to value the Windows platform," he said.

Microsoft didn't address channel revenue on the conference call except for Klein to say that inventory was "drawn down as the channel awaits for new Windows 8 devices."

Klein touched briefly on Microsoft's announcement that he, after four years with the company, was leaving at the end of the current quarter.

"At various times you assess your personal goals and priorities. Sometimes you change jobs, sometimes you change companies. As we approach the end of the fiscal, I thought it a good time to focus and spend more time with my family, which I had not previously had a chance to do. I see a great future for [Microsoft] and I couldn't be more proud of the finance organization. I look forward to working with my successor on the transition," Klein said.

Meanwhile, Microsoft's new Office 365 continues to gain traction in the market. About 25 percent of enterprise customers now have Office 365, and the business is on a $1 billion annual revenue run rate, Klein said. In addition, it grew at a 5x rate compared to last year, he said.

"This represents a fundamental shift in our model. Both businesses and consumers can access [Office] through a subscription. We expect to grow that customer base and reduce piracy. As our enterprise customers modernize their infrastructure, we also expect customers to transition to the cloud with Office 365. It's been a while, but we've been talking investments in the cloud and we're starting to realize those in a meaningful way," Klein said.

In the first quarter, Microsoft made Office 365 Open available to solution providers for the first time, allowing them to bill customers directly for annual subscriptions.

PUBLISHED APRIL 18, 2013