Microsoft Readies Windows Update as PC Sales Slump

May 7 (Bloomberg) -- Bloomberg's Scarlet Fu reports on Microsoft’s plans to revamp their Windows 8 operating system. She speaks on Bloomberg Television's "Bloomberg Surveillance." (Source: Bloomberg)

Microsoft Corp. (MSFT) is preparing an update for Windows 8 as new licensing figures indicate the new operating system isn’t fueling enough demand to reverse a slump in personal-computer sales.

The 100 million Windows 8 licenses sold since the software’s debut in October are in the “general ballpark” with the previous version during a similar period, Tami Reller, chief financial officer of the Windows division, said in an interview last week.

Microsoft completely overhauled its flagship operating system to make it more appealing to users amid a shift to mobile, touch-based computing. Still, Windows 8 has failed to reignite the ailing personal-computer market, where shipments plummeted by their largest margin on record in the latest quarter, according to market-research firm IDC. While Microsoft said it’s planning to update Windows 8 to address customer feedback, updates won’t quickly turn the PC industry around.

“The changes will help some but there are some serious challenges that the PC industry is facing that I’m not sure can be easily fixed,” said Bob O’Donnell, an analyst at IDC who is based in San Mateo, California.

O’Donnell also questioned whether the licensing milestone accurately reflects the number of operating systems in use.

Photographer: Stuart Isett/Bloomberg

Microsoft completely overhauled Windows to make it more appealing to users amid a shift to mobile, touch-based computing. Still, Windows 8 has failed to reignite the ailing personal-computer market. Close

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Photographer: Stuart Isett/Bloomberg

Microsoft completely overhauled Windows to make it more appealing to users amid a shift to mobile, touch-based computing. Still, Windows 8 has failed to reignite the ailing personal-computer market.

“I don’t know what that license number means,” O’Donnell said in an interview. “Talk to the PC guys and ask how they’re doing. I talk to them, and I’m not getting anything like that from them.”

Windows Blue

The next update to Windows, code-named Blue, will be released later this year ahead of the holiday shopping season, Redmond, Washington-based Microsoft said. Julie Larson-Green, the chief of Windows engineering, said in a speech today that a preview of the software will be available at Microsoft’s Build conference in late June.

Larson-Green will begin talking about Blue’s features in the next several weeks and offer more detail on what the company has decided to do in response to customer demands to restore design features such as the Windows Start button and Start menu, Reller said.

“The learning curve for Windows 8 is real and we need to address that,” Reller said. Microsoft will make it easier for customers to adopt the new operating system with improvements in marketing and retail, she said. She declined to specify what changes would be made in the software to accomplish that and whether they would include restoring the Start button and menu.

While the Blue upgrade will restore the Start button, it won’t restore the menu, Verge reported last month.

Design Overhaul

Microsoft heavily promoted Windows 8’s design overhaul, which features a start screen with colored tiles that represent programs, websites and contacts, featuring automatically updated information. Any backpedaling on the start menu issue would be viewed as a reversal of a basic design element.

Some customers testing the new software before it was released in October did complain about the removal of the iconic Start button, Larson-Green said in an October interview. Still the design team wanted to stick to its vision and instead tried to analyze what users were trying to do and make it clearer to them how to accomplish those tasks.

The design changes were aimed at consumers who are increasingly checking e-mail, browsing the Web and watching television and movies on tablets. PC shipments plummeted 14 percent in the first quarter, the worst decline since researcher IDC began tracking data in 1994. Windows 8 debuted alongside the introduction of Surface, the first computing device designed and sold by Microsoft as the company challenges Apple Inc.’s iPad and other tablet computers.

Surface Tablets

Reller declined to say how many of Microsoft’s Surface tablets have been sold, or the total number of devices, including those made by other manufacturers, that are running Windows.

During the first quarter, Microsoft shipped just 900,000 Surfaces and there are a total of 1.8 million tablet devices running Windows 8 or a related version, Windows RT, giving it less than 2 percent of the market, IDC said last week.

Customers’ response to Surface’s software and applications has been “less positive” than the reaction to the tablet, Reller said. The company has fixed Surface’s e-mail program and has made other applications easier to use, and is trying to attract more top third-party programs.

Even with an update to Windows 8 coming out, the PC market won’t recover this year, IDC said. While the research firm in March forecast PC shipments will decline by 1.3 percent this year, that estimate will probably be cut further after the worse-than-expected first quarter, according to Michael Shirer, a spokesman for IDC.

Microsoft shares declined 1.3 percent to $33.31 at the close in New York, leaving them up 25 percent this year, compared with a 14 percent gain in the Standard & Poor’s 500 Index.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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