New Windows Upgrade Will Bring Scant Relief to Ailing PC Market

The release of Microsoft Corp.’s new Windows 10 operating system -- an event that in years past sparked a surge of computer buying -- will do little to ease the four-year sales slump that’s been dogging the PC industry.

Component makers from Micron Technology Inc. to Intel Corp. aren’t factoring in a jump in demand in their forecasts, and there are few signs of consumer excitement for new PCs around the release. That’s in stark contrast to the lines 20 years ago at computer shops for Windows 95, which drove a 23 percent rise in PC sales in its first year, or even more recent versions such as Windows 7 that pushed users to upgrade their hardware.

This time around, on the eve of the Windows 10 release, the consumer-gadget market has long since shifted away from Microsoft. As more people use mobile devices, much of the storage and data crunching that once happened in desktops and laptops is now being handled by programs accessed via the Web. Microsoft is trying to make Windows more like Google Inc.’s Android and Apple Inc.’s iOS, and by offering the software as a free upgrade for existing PCs, it’s removing the impetus for many consumers to buy a new computer.

“It’s hard to imagine people rushing out to buy new machines,” said Steve Kleynhans, an analyst at Gartner Inc. “I just can’t see anything about a new PC or a new operating system that will drive massive new sales.”

The new operating system restores the Start Menu that Microsoft removed in Windows 8, replaces Internet Explorer with a new browser called Edge, builds in the Cortana voice-enabled personal assistant and replaces passwords for unlocking devices with face or fingerprint scans. Yet many of the new devices designed to take advantage of Windows 10 won’t ship until closer to the holidays.

Late Boost

Even Microsoft Chief Executive Satya Nadella said the new software won’t really gain steam until two quarters from now.

“My bullishness for Windows 10 is more in the second half of the fiscal year,” he told analysts last week, referring to Microsoft’s year that started July 1.

Instead of getting more demanding, Windows is becoming leaner, meaning that the processors, hard drives and other components aren’t becoming obsolete as quickly as in the past, removing the need for consumers and businesses to upgrade their PCs to tap the power of the new software.

Underlining that change, since Windows 7 debuted in 2009, the system requirements -- the hardware Microsoft recommends as the minimum to get the new software to perform adequately -- haven’t changed. Taking it even closer to mobile operating systems, Windows 10 will be free and downloadable for a year.

PC Decline

The PC market hasn’t expanded since peaking in 2011 at 363.8 million units, according to IDC. Last year, 308.2 million PCs were shipped, making the PC market less than a fifth the size of the smartphone market.

From Windows 10’s debut on July 29, the PC market will decline 2 percent in the following 12-month period, according to a Bloomberg Intelligence analysis of IDC projections. Compare that with Windows 7’s launch in 2009, when PC shipments rose 18 percent. Even 2007’s Windows Vista -- a troubled release that many customers avoided -- was followed by a year in which shipments rose 17 percent. More recently, they declined 10 percent in the year after Windows 8, whose radical design overhaul was panned by many users, went on sale in 2012.

Intel, whose processors power more than 80 percent of the world’s PCs, has already given up on getting help from Windows 10 this year and is now expecting the market to decline at a percentage in the high single digits, which probably means the chipmaker will report a sales decline for 2015.

“We didn’t build in a big boom from the Windows 10 transition,” Intel CEO Brian Krzanich said on a July 15 conference call.

Consumers will probably download the new software onto their existing machines, try it, feel the benefit from some new features and then decide whether to purchase new equipment, Krzanich said.

‘Harder to see’

“For a while now, most PCs serve the most needs of most users,” said Loren Loverde, an analyst at IDC. “It’s not that you don’t get anything for getting a new PC -- you do -- but that incremental benefit versus the cost is a bit harder to see.”

New features in Windows 10 such as Cortana will benefit from better microphones to help voice recognition, for example. Touch screens will help users negotiate the large tile-based interface of Windows, and more advanced cameras and fingerprint readers will help with new automated security and login features.

“There are some cool new things that light up if you’ve got new hardware but this will run just fine on the traditional type of hardware,” Kleynhans said.

Micron, the largest U.S. maker of memory chips, on June 25 predicted sales that fell short of analysts’ estimates for the current period, citing weaker demand from PC makers. The company’s executives emphasized that they’re reducing its dependence on that industry and trying to sell more chips into the phone and server markets.

Corporate Interest

Still, some PC makers anticipate that Windows 10 will help ignite corporate demand that failed to materialize for its predecessor, Windows 8, which many companies skipped after deciding it was too consumer-focused.

“Business users are giving me positive feedback on Windows 10 and I didn’t hear that on Windows 8,” said Kirk Schell, general manager of Dell Inc.’s commercial client product line. “To the best of our estimates, there are 600 million systems out there that are four years old and people are waiting to refresh.”

Microsoft said four manufacturers -- Dell, Hewlett-Packard Co., Lenovo Group Ltd. and Acer Inc. -- will have machines with Windows 10 pre-loaded available for sale on the first day. In Microsoft’s view, the new release will bolster the PC industry by drawing attention to Windows products versus computers, phones and tablets running operating systems from Apple and Google.

“The real competition for PCs is with the other ecosystems out there,” said Yusuf Mehdi, Microsoft’s marketing chief for Windows and devices. “This is bringing real energy to the Windows ecosystem and to the extent that we do that, it’s good for the Windows PC market.”

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