Increased piracy hurt Microsoft's quarter

For several quarters, Microsoft has been seeing a drop in piracy rates, which has been helping fuel improved business in its Windows unit. In the just-reported March quarter, however, Microsoft saw an increased rate of piracy, an executive told CNET News.com on Thursday.

Colleen Healy, Microsoft's general manager of investor relations

(Credit: Microsoft)

In an interview, Colleen Healy, Microsoft's general manager of investor relations, said that the number of unlicensed PCs, particularly in Asia, increased during the company's third quarter. That was one of the factors that caused the Windows unit to come in shy of what the company had forecast.

"Q3 was a tough quarter on the unlicensed front," Healy said. "We had been making gains there for the past several quarters."

Overall, Healy said the PC market came up about a percentage point shy of Microsoft's growth forecast.

"We saw the PC market take a different mix," Healy said. "Emerging markets on the PC hardware came in a little stronger; mature markets came in a little weaker."

Weakness in the Windows unit and the Microsoft Business Division, which includes Office, was offset by higher-than-expected sales in the Entertainment and Devices unit, which includes Xbox, Healy said.

Healy said that the company expected the piracy reduction trend to return in the current period, the company's fourth quarter, which runs through June.

She also said that Microsoft continues to see a strong market for software, despite rumblings about the economy.

"When we look at the envirnonment, IT and software spending continues to look healthy," she said. "From where we sit, the economy is looking good from an IT and software spending standpoint."

[Sumatra-Bosch]

Does MSFT Count Apple and *nix PCs as Unlicensed?

Worth asking.

[Pete Bardo]

Good question!

Exactly how does M$ estimate the number of unlicensed PC's?

[Hernys]

Possibilities

Market research? Comparing browsing statistics to licensed units? Failed WGA validations? I can think of many possibilities. None is probably too exact but that's irrelevant, because it's the comparison of the same methodology for different studies that matters.

[als]

Increased Priacy?

What, WGA not doing the job? Maybe Colleen Healy, should just admit that Vista is an expensive piece of crap and nobody is buying it.

[WillyWiggler]

Nobody is buying it?

There was $14.5 billion in revenue, and $0.47/share profits. Do you really think nobody's buying Vista?

[Penguinisto]

Bring on the scapegoats!

Anything to divert blame from the real reason that MSFT didn't do so hot: More and more Windows users are becoming Mac and Linux users. ;)

/P

[MMC Racing]

Mixed bag

Vista is lagging.. The Server group continues to have good growth, which is ultimately critical to selling Vista.. Companies installing Exchange and Sharepoint and etc are going to move to Vista eventually, so seeing that business continue to grow strong is good for the long term.

Nice to see 3 quarters of profit for Xbox.. Took a long time to get there..

Online is lagging hard core, but I suspect the loss is from heavy investment. Like Xbox, the payback will take time..

I'm glad I sold 3/4ths of the MSFT shares I owned yesterday at $31.25 as the street was hoping for a good beat, and not inline results.

[suyts]

Uhmm,

MS beat last years revenue and Wall Streets expectations.....not so hot??? $4.39 bil. in PROFIT!!!...... Yeh, sucks to be them.

<a class="jive-link-external" href="http://www.foxnews.com/wires/2008Apr24/0,4670,EarnsMicrosoft,00.html" target="_newWindow">http://www.foxnews.com/wires/2008Apr24/0,4670,EarnsMicrosoft,00.html</a>

[Maccess]

Using Linux is NOT Piracy.

A methodology which counts PC hardware sales vs. MSFT Windows sales would count Linux users (which are growing by leaps and bounds) as piracy.

Piracy is not increasing, could MSFT market share be decreasing for both Windows and Office?

OpenOffice.org is free, MS Office is $300, even a non-economist will tell you it's simply a matter of time.

[k2dave]

Could Vista be the reason?

Vista doesn't run that well, and needs some serious 'horsepower', which many people in some markets (you mentioned Asia), just can't afford, and really don't need. Perhaps it's that people want XP and don't feel the need to buy Vista when they will just install a old copy of XP anyway. Also with XP you don't need a super fast system with 2GB of ram or more. So either the store or the end user is installing either a old copy of XP or a cracked one. In a developing country the amount of ram and processing power can be cut by 75% with XP over Vista which represents a big savings.

I know that XP is still available for new computers, but it is a bit of a PITA to get a new computer with XP, you can't walk into the store and buy it, you have to go to a sellers web page, hunt for XP systems, which is usually not the main option and have them build it.

[Maccess]

Vista Business sales are really XP Pro sales

Vista Business includes downgrade rights to Windows XP Pro.

Since the OEM price of VB and XPP is the same, it makes sense for companies to buy computers with the Vista Business license and downgrade to XP. They can choose to upgrade to Vista later (or just keep the Vista license as an upgrade path to Windows 7), so there's more value than buying an XP Pro license at the same price.

Of course, Microsoft can claim companies are buying Vista Business, but the reality is that they are buying the Windows Vista Business license to run licensed Windows XP via the downgrade rights.

Lenovo offers a downgrade option, offering a CD for their customized XP pre-load, or a service center downgrade to buyers of PCs with Vista Business.

Dell offers the option of an XP pre-load for buyers of PCs with Vista Business.

It's the consumers who buy Vista Basic, Home Premium, and Ultimate that have no choice. Microsoft also wins because consumers have to choose the OEM "upgrade" to Vista Business to run licensed XP.