Microsoft Benefits From Corporate PC Refresh

Microsoft is reaping the financial rewards as businesses continue the long awaited refresh of their corporate PC systems.

“We believe Microsoft has been unfairly grouped into so-called PC tech bellwethers that are currently facing growth challenges in the post-PC area,” Yun Kim, an analyst with Gleacher & Co., wrote in a 6 December research note, “in which portable devices and new form factors are displacing traditional PCs.”

Despite those challenges, the note continued, Microsoft is taking advantage of a “strong corporate PC refresh cycle” and “overall positive trends in the enterprise IT spending environment.” Business IT spending continues to provide Microsoft with an advantage perhaps denied some of its tech peers.

Strong PC Refresh

“Despite slowing consumer PC demand, Microsoft was able to post 10 percent revenue growth in its Windows business in the past quarter, driven by the corporate PC refresh cycle,” Kim wrote. “We expect the corporate PC refresh cycle to continue to accelerate in 1H of CY11 (2HFY11) as corporations begin to allocate budgets for Windows 7 roll-out.”

Increased sales in Microsoft’s Servers & Tools segment, as well as its Xbox Kinect hands-free game controller, are also contributors to Kim’s rosy outlook: “We highlight that with continued success of its Xbox platform, Microsoft has the ability to expand the console into an interactive TV platform, much like Apple TV and Google TV.”

Whether Microsoft can succeed with its newly launched Windows Phone 7, however, remains a larger question – one particularly pressing for the company, considering its need to regain market-share in the smartphone space.

“With the recent success of Google’s Android in the smartphone market,” Kim added, “we believe there is a chance that Microsoft’s efforts in this market could prove to be successful if it becomes quickly commoditised or the low-end of the market grows fast enough and large enough.”

Windows 7 Impact

Other analysts seem to agree that Windows 7 will help boost corporate spending through the next several quarters.

“It looks like the Win7 inspired upgrade cycle can start in late 2010 and run through early 2013,” Katherine Egbert, an analyst with Jefferies & Co., wrote in an October research note. “We expect new hardware purchases to precede the software upgrades by about 6 months.”

During the recent global recession, many businesses curtailed IT spending and made do with ageing equipment. As Windows 7 approached its October 2009 street date, analysts wondered whether businesses would use the release to engage in a broad-based hardware and software refresh. Indications suggest businesses are indeed in an IT-spending mood, but the true scope probably won’t be known for several quarters in the future.

In the meantime, Microsoft has been pouring millions of dollars into the development and marketing of products such as Windows Phone 7 and Office 365, hoping to expand its market-share in areas ranging from smartphones to cloud-based applications.