Since Microsoft (MSFT) released its Windows 7 operating system in October 2009, it has sold 90 million licenses for the software. Most of those have been to consumers, with enterprise sales lagging as usual while IT departments try to figure out if the investment in a new operating system is worth the expense.
Considering that Windows XP is nearly 10 years old, and that it was the last Microsoft system software that attracted droves of customers, the pent-up demand for a new operating system was bound to be released if the company could just deliver a solid product. Fortunately for Microsoft, Windows 7 delivered the goods that Windows Vista never could.
PC makers like Hewlett-Packard (HPQ) and Dell Computer (DELL) should also see a jump in sales during the rest of 2010. Computer industry tracking firm Gartner, Inc. (IT) expects PC sales to increase 20% in 2010, to more than 366 million units, and spending on PCs to jump 12.2% to $245 billion. In December Gartner estimated 2010 growth at 13.3% and revenues to increase by just 1.9%.
Though Gartner doesn’t say so, Windows 7 has a lot to do with the new forecast. An upgraded, solid, robust operating system gives corporate buyers a reason to upgrade hardware that is, in some cases, up to five years old. Talk about pent-up demand.
To realize a profit from the success of Windows 7, hardware firms must have the right products at the right price point. Gartner predicts that mobile PCs will drive 90% of PC sales growth in the next three years, contributing some 70% of all shipments by 2012. Mobile PCs include mini-notebooks, netbooks, and tablets.
Another, perhaps more serious catch, is the convergence of functionality between mobile PCs and smartphones. Tablet devices, like Apple Computer’s (AAPL) iPad, are really just bigger smartphones without the capability to make phone calls. Gartner thinks that as many as 10.5 million tablets could ship in 2010. That’s about 3% of total expected 2010 shipments — not a make-or-break number but significant nonetheless.
Dell gets about 54% of its total revenues from mobile and desktop PCs. H-P’s enterprise mobile and desktop revenues represent about a third of the companies total revenues. H-P’s days of inventory supply fell by a full 6 days from the year-ago quarter to 25 days, but grew by 2 days sequentially in the quarter just ended. Dell’s inventory supply is a far lower 8 days, but that is also higher than a year ago’s level of 7 days.
Windows 7 should drive sales at the PC makers, but the effects so far have been negligible. Business buyers, big ones, are needed to push the hardware out the door.
This could cause a sprint after market share, with hardware makers going after lower priced mini-notebooks and netbooks. That chase could end up driving down margins and profits at the PC makers. Dell depends more heavily on selling hardware than does H-P, so it has more at stake and more to lose. The guys from Round Rock need to run a smart, tough race.
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