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Monday, 27 July 2009 08:49

Microsoft has hit bottom, set for rebound: analyst

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Analyst firm Ovum describes Microsoft's results as "dismal" but suggests the worst might be over for the software giant.

The global recession/downturn/crisis (or whatever you care to call it) might not be over. There is clearly some pain still to come, with unemployment tipped to rise over the next year or so. But things do seemed to have bottomed out, and it is time to start looking for good news.

It's not hard to see why Ovum characterised Microsoft's fourth-quarter and full-year results as dismal.

Gross revenues were down 17 percent and 3 percent respectively. And net income was down 29 percent and 18 percent. Only stringent cost-cutting - including the first-ever layoffs at Microsoft - prevented even worse results, according to Ovum research director Warren Wilson.

He reckons that a wave of new products from Microsoft could see its position improve later this year. To me, that's a convincing argument. After all, multiple products are set to be replaced in a relatively short timeframe.

Windows 7 isn't far away. Apart from the upgrade business, a successful debut for the new operating system could release pent-up demand for new hardware. If customers had decided against switching to Vista, there were no compelling reasons for replacing PCs or notebooks across the board.

Clearly, non-consumer customers will still need to come up with a viable business case for hardware or software upgrades, but the Windows 7 release candidate is apparently being received with an enthusiasm that Vista never manages to attract. Getting past Vista removes a significant obstacle to upgrades.

Windows Server 2008 R2 will ship around the same time. New virtualisation and management features could spark renewed interest - especially as virtualisation is seen as a significant factor in reducing IT costs and energy consumption.

What else is ahead? Please read on.


2010 will see other significant releases, including Windows Mobile, SharePoint Server, Exchange Server, and Office 2010.

Wilson notes that Office 2010 will bring "a slew of enhancements, including an overhaul of the navigational 'ribbon' to make it simpler and more intuitive to use." Anecdotally, the Office 2007 ribbon seems to have been one of the bigger reasons for users staying with Office 2003, so an improvement in that area would seem essential for increased popularity.

He doesn't think everything is rosy for Microsoft, pointing to the way Zune and Xbox are also-rans, and the relative success of Linux on netbooks (10 percent, according to Wilson).

While I generally agree with his perspective, I think he is being a bit optimistic in saying that "the most recent quarter will mark the low point for Microsoft, after which it will ride out the rest of the recession".

I can see no real reason to expect the current quarter to be better than the last. I think Wilson's reference to "several months of bumping along the bottom" is more accurate, at least until the new products start to flow.

Continued cost cutting may help profitability, but revenue growth - especially for the business division - is what's really needed. With new versions of multiple products looming, surely buyers will remain on the sidelines as much as possible to avoid the extra costs associated with upgrading operating systems and applications soon after initial deployment.

No doubt Microsoft will be hoping I'm wrong and Warren Wilson is right. And that its proposed settlement with the European Commission will ward off the threat of another billion dollars or so in fines.


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Stephen Withers

Stephen Withers is one of Australia¹s most experienced IT journalists, having begun his career in the days of 8-bit 'microcomputers'. He covers the gamut from gadgets to enterprise systems. In previous lives he has been an academic, a systems programmer, an IT support manager, and an online services manager. Stephen holds an honours degree in Management Sciences and a PhD in Industrial and Business Studies.

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