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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

October 23, 2008 at 2:43 PM

Microsoft earnings: Netbooks soar, but may “cannibalize” traditional PC sales

Netbooks are why PC sales stayed strong in Microsoft’s last quarter, the company said during its earnings call.

Netbook sales grew 8 percent, compared with “flat to low single digit” sales of traditional PCs. “Traditional” could refer to full-size machines, as opposed to the mini laptops using mobile chips.

Traditional is also where Microsoft makes more money: Netbooks run older, cheaper Windows XP (or Linux). That helps explain why Microsoft’s client software sales were lower than the companies expectations.

Microsoft’s trying to figure out whether the netbooks phenomenon is “cannibalizing” PC sales or creating a fast-growing new market segment. The answer is likely “both,” said Bill Koefoed, the company’s new investor relations manager.

Holiday quarter PC sales should be up 10 percent to 12 percent, but through June the growth range is 8 percent to 12 percent, CFO Chris Liddell said.

“Traditional, mature market PC unit” sales will grow “low single digits,” he said.

In emerging markets, where Microsoft and PC makers offer cheaper machines, growth will be “mid to high teens.”

I think he said that netbooks will add 5 percentage points of growth to the overall PC market.

Liddell didn’t say anything about Mac sales, but this echoes Apple’s lowered forecast.

During questions, Liddell touched on the netbook cannibalization question:

“It will affect the margins but some of that will be incremental growth we wouldn’t otherwise have had,” he said.

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