First, the good news for Microsoft and its channel partners: Corporations continue to spend heavily on Microsoft software. That's great for VARs. But a bit of trouble could be brewing in the Windows sector, especially as cloud computing and tablet computing continue to take hold. There are even signs that the netbook boom has gone bust. Here's why.

Microsoft's Q3 revenue, announced yesterday, was a record $16.43 billion, up 13 percent from Q3 last year. And net income was a hefty $5.23 billion,up 31 percent from Q32 last year. Impressive. But consider this statement from Microsoft:
"Windows 7 remains the fastest selling operating system in history with 350 million licenses sold. Revenue for the segment was down 4% in the third quarter, in line with the PC trends, excluding prior year launch impact."
Hmmm... Microsoft's Windows spin sounds like a politician: "Things are great, but sales are down." Now, investors are reacting: Microsoft shares dipped about 4 percent this morning, following last night's earnings announcement.

Why did Windows 7 sales dip? Perhaps the first, big, initial wave of Windows 7 upgrades has ended. But there are two other factors at hand:
  • Apple's iPad is a runaway hit with consumers.
  • iPad sales are chipping away at netbook, low-end notebook and perhaps even some desktop PC sales in the consumer market, The VAR Guy believes.
For the first time in 20 years, Apple's quarterly profits exceeded Microsoft's quarterly profits, notes Bloomberg. Among the other details Bloomberg pinpointed:
  • Revenue in Microsoft's Windows division was $4.45 billion; Wall Street had expected $4.6 billion.
  • Consumer PC shipments dropped 8 percent in the quarter.
  • Netbooks plunged 40 percent.

The Bigger Picture

Let's not press the panic button. Microsoft's business sales -- the area most critical to channel partners -- remain very strong.

Microsoft said Server & Tools revenue grew 11% year-over-year, the fourth consecutive quarter of double-digit growth. Strong business adoption of Windows Server 2008 R2, SQL Server 2008 R2, and System Center are driving record revenue and margin expansion, Microsoft added.

And if you read closely enough, you'll notice that Microsoft COO Kevin Turner is starting to tout Office 365 -- the forthcoming cloud successor to Business Productivity Online Suite. The VAR Guy's best guess: Office 365 will launch within three months. Technology companies such as Quest Software have already started assisting VARs and MSPs with Office 365 migration guidance.

How many channel partners will jump on the Office 365 bandwagon? The VAR Guy doesn't know the answer. But in the meantime, corporate demand for Microsoft's server software is a healthy trend for Microsoft's channel partners.

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