Five Key Quotes from Microsoft on the PC Industry

by: David Jackson

Here are five key quotes from Microsoft's (NASDAQ:MSFT) conference call:

1. Recession

We're not economic forecasters, and there is a high degree of uncertainty in outlook based on the state of the economy. As a result we've adjusted our guidance approach as follows. At the top end we're assuming a mild recession, and a relatively modest growth rate for all IT-based products. While at the bottom end we're assuming a deeper recession in the economy an end-season lower growth for IT... Over the first two months of this quarter we experienced much the same economic conditions as we saw during the second half of fiscal 2008, with demand actually a little better than our historic seasonality. However, in September, as the credit crisis unfolded, many partners and customers were faced with market uncertainty and credit restrictions which impacted the rate at which they purchased software. We've seen this behavior continue into October and while we're optimistic about the actions the governments have taken to unfreeze the financial markets there will be some spillover into the real economy

2. PC Market Growth

We estimate that the PC unit growth rate for the quarter was between 10% and 12%. While this tracks to the overall forecast we provided in July, the underlying mix was different than we expected entering the quarter. Specifically, growth of traditional PC units was several points lower than we expected. This was offset by growth in the new low end, netbook segment. From a geographic perspective, we estimate mature market traditional PC growth of flat to low single-digits with netbooks adding about eight points to the growth. In emerging markets we continued to see strong double-digit growth across all segments... we see second quarter growth of 7 to 10%, and full year growth of 2% to 6%. Underlying this guidance we see significant variability in the potential PC hardware demand. As a result, we made some adjustments to our forecast of PC units and now expect PC unit growth of 10% to 12% for the second quarter and 8% to 12% for the overall fiscal year.

3. Windows

The [Windows] Client revenue grew 2% to $4.2 billion, missing guidance by four percentage points... During the quarter, our Windows OEM license units increased by 8%, a few points lower than the overall hardware market. The shortfall between OEM unit growth and hardware growth was primarily driven by inventory reductions in the OEM channel. As we mentioned in the last earnings call, we exited the fourth quarter with OEM channel inventory above historic norms, which were worked down during the quarter. Despite healthy unit growth, OEM revenue declined 1% year-over-year as the average selling price declined. This was primarily the result of two factors. The mix shift in netbooks and continued mix shift to emerging markets, both of which have lower average selling prices than our historical average selling price.

4. Netbooks

At this stage it is too early to determine the extent to which the new netbooks segment is cannibalizing the traditional consumer PC market sales or simply capturing a new market opportunity, so we believe that there are likely aspects of both.

5. Q4 Sales Outlook

...we think, particularly with Christmas coming up, that overall sales will be relatively good. We have reasonably good visibility into this quarter in terms of the inventory positions. We feel pretty good about some of the initiatives that we have in the unlicensed area. We've got channel inventory down to where we would like to see it. So, our visibility is better in this quarter than it is in some of the later quarters. So, it's simply as we go further out in the year, we just become more cautious.

The quotes are taken from the Microsoft transcript which was published on Seeking Alpha a few hours after the call ended. If you think I missed something more important than these quotes, feel free to copy and paste your quote from the full transcript and leave as a comment below.

Also of interest -- here are all the transcripts from the Software sector.