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Microsoft: Windows 8 Form Factors Will Diversify

CFO says that the public can expect to see more touch-enabled Windows devices being released at "more attractive price points" in the coming months.

• By Kurt Mackie
• 04/22/2013

There's already a broad market of devices running Windows 8, Microsoft's first touch-centric operating system. But that market is about to expand with new devices and price points.

It's all part of the company's strategy to counter a growing industry perception that Windows 8 is headed for failure.

Microsoft acknowledged market shifts affecting its Windows business in financial reporting last week, but pointed to software and hardware changes to come.

Peter Klein, Microsoft's outgoing chief financial officer, described the company's Windows Division revenue as "flat" during its fiscal third quarter. Under non-generally accepted accounting practices analysis by Microsoft, which included Windows upgrade offer revenue, the company estimated its Windows Division revenue at $4.618 billion in the third quarter vs. $4.633 billion a year ago.

Klein said during a Thursday earnings call with financial analysts that there is no doubt that the device market is evolving, and that Microsoft's Windows revenue has been affected. However, he insisted that the overall market is growing for the Windows ecosystem.

"In short, Windows is transforming to the new era of computing," Klein said. He offered financial analysts a few reasons why that may be the case. First, Klein dropped the "Blue" word, which is a reference to a purported wave of updates to Windows and other Microsoft products that are rumored to be arriving this summer.

"Looking ahead, we will release the next version of Windows, code-named Windows Blue, which further advances the vision of Windows 8, as well as responds to customer feedback," Klein said.

The Windows Blue update was first disclosed by a Microsoft official last month after being talked about by trade press. Speculation has abounded that Microsoft will bring back the Start button or allow users to boot directly into the Desktop user interface, bypassing the Metro side of Windows 8, but Microsoft hasn't publicly disclosed the details.

New Devices To Come
Klein said that the public can expect to see more touch-enabled Windows devices being released at "more attractive price points" in the coming months. Moreover, the devices will be available in different form factors.

"As part of this, we are also working closely with OEMs on a new suite of small touch devices powered by Windows," Klein said. "These devices will have competitive price points partly enabled by our latest OEM offering designed specifically for these smaller devices and will be available in the coming months."

A report by research and consulting firm IDC has already confirmed that Microsoft's original equipment manufacturer partners will be getting discounted rates on Windows 8 licenses to build new device products. Klein just referred to Microsoft's OEM partners, but Microsoft itself is thought to have such plans to build smaller devices with its Surface tablet product line. Undisclosed sources told The Wall Street Journal earlier this month that Microsoft was working on a seven-inch Surface tablet to compete with tablet products from Google and Apple.

Klein also briefly referred to new processor products coming from Intel in the second half of this year that will alter the Windows 8 product landscape.

"Haswell, Intel's fourth-generation core processor, will help enable new devices that combine performance benefits with power savings," Klein said. "Later, in the year, we expect to see devices based on upcoming Intel's Bay Trail Atom processor, which promises to deliver tablets and hybrid PCs with extended battery life at competitive prices."

Intel also described those products as part of its earnings report, forecasting laptops to come as low as $200 running Intel's Bay Trail processor.

Microsoft's Windows Division results were highly anticipated because of a new low point for PC shipments reported in the first quarter by IDC and Gartner. Microsoft and Intel fared relatively well in the tech sector, despite predictions of doom. However, as far as Windows is concerned, at least one writer is arguing that Windows 8 represents the end of Microsoft's Windows OS reign.

Other Products
Microsoft has diverse product lines spread across five divisions. All of the divisions did well in Microsoft's third quarter. Klein described additional details about those products during the earnings call, as follows:

• Windows Store now has "six times as many apps" since its launch.
• Microsoft Surface is available in 22 countries from 77 retailers.
• Office 365 services have seen uptake with "one in four of our enterprise customers."
• System Center revenue grew 22 percent and Hyper-V gained four points of market share over the past year.
• Windows Azure Active Directory is being used by "over 2.9 million businesses" for Office 365, Microsoft Dynamics CRM Online, Windows Intune and Windows Azure.
• SQL Server revenue grew 16 percent.
• Exchange, SharePoint and Lync each grew double digits.
• Lync revenue grew over 30 percent this quarter. Microsoft estimates that 90 of the Fortune 100 companies are using Lync, and more than 500 million seats of Lync enterprise voice have been deployed.
• Windows Phone details weren't disclosed but Klein claimed that "we now have over 10 percent share in several countries."

Microsoft's Q3 earnings results can be found at Microsoft's investor relations page here.