Why netbooks are killing Microsoft

by: Preston Gralla Tuesday, 24 February 2009

When Microsoft laid off 5,000 people in January, analysts and pundits pointed to plenty of reasons for the first major layoffs in the company’s history. The obvious culprits included the overall economic meltdown, Apple’s continued success and Wall Street’s desire to see a leaner Microsoft. But the real cause of the layoffs can be summed up in a single word: netbooks. These lightweight, stripped-down laptops that sell for between $200 and $400 have taken a big chunk out of Microsoft’s bottom line. Unless the company comes up with a plan to handle them, its revenue will stagnate. In announcing the layoffs, Microsoft said that its revenue had increased an anemic 1.6 per cent in the quarter that ended 31 December compared to the same quarter a year earlier. But that number doesn’t tell the whole story. Windows took the biggest hit, while systems for servers and related tools had hefty increases in sales. Windows sales were down an eye-popping 8 percent; server and related revenue grew 15 per cent. Microsoft clearly blames netbooks for the drop in Windows sales. Here’s what it said in its statement: “Client revenue declined 8 per cent as a result of PC market weakness and a continued shift to lower priced netbooks.” Netbooks have become the only bright spot for PC makers, with sales accelerating while the rest of the PC market stays in the doldrums.

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