Microsoft's chief financial officer told financial analysts Friday that business PC spending is still in tough shape, showing continued declines and offering no hope for a corporate refresh cycle until next year.
CFO Chris Liddell also said that the refresh is expected to be "gradual" and take place over a couple of years, but that corporate reaction to Windows 7 so far has been stronger than expected.
In a conference call with analysts following Microsoft's first-quarter earnings announcement, Microsoft executives outlined the extent of what are still sluggish business PC sales. They said that during the most recent quarter, which ended Sept. 30, Microsoft sales into the business PC segment fell in the "high single digits," even though during the same period consumer sales were solid. Windows 7, which launched on Thursday, is expected to be a force that turns that around -- but not immediately.
"On the business side, anecdotal feedback at this stage is good from corporate (customers) in terms of reaction to Windows 7 and the benefits it brings," Liddell said. And, he said, once the upgrade gets into full swing, "we'll talk about it spreading over the next couple of years."
Businesses' reluctance to upgrade PCs, he said, has to fade eventually. "This can't continue forever," Liddell said. "Eventually those PCs wear out and have to be replaced. We hope and expect (the refresh cycle) to be next year."
During the run up to the Windows 7 launch, Microsoft offered the ability to "pre-order" sales of the OS. Though no solid numbers have been released as to how many took advantage of pre-ordering, Liddel said the overall number was small, but good. "Right at the top end of our expectations," Liddel said.
Microsoft is at a critical stage in its business cycle. Executives of the software giant continue to say that the company's sales of client software have been especially hard hit by a business IT market that has remained soft since last year's economic meltdown. However, rivals including Google and IBM -- which is not as exposed to harsh declines in the PC space - - have enjoyed relative strength. In addition, Microsoft rival Apple has not been hit as hard in the desktop and notebook segments, as its Mac OSX platform continues to enjoy growth.
However, even as the company was launching Windows 7, it's also been working frenetically behind-the-scenes to build out its product line for Cloud Computing deployments. Microsoft's cloud strategy encompasses virtually its entire product line, and is highlighted by the forthcoming Azure product.
For its first fiscal quarter that ended Sept. 30, Microsoft reported Friday that it posted revenue of $12.92 billion with net income of $4.4 billion -- both numbers that beat Wall Street expectations but marked double-digit declines over the same quarter in 2008. Microsoft also reported that its profit was helped significantly by major cost-cutting efforts it began earlier this year, including reductions in headcount.
Liddell also described Microsoft's sales in the server software side of the business as showing good momentum, with market share gains. "We've got great attach (rates) relative to the server market," he said. In addition to Windows 7's launch this week, Microsoft also released Windows Server 2008 R2 -- a release that company executives believe will only work to boost its fortunes in the higher-end space.