The PC business is bad right now. The golden era when Intel Corporation (NASDAQ:INTC) and Microsoft Corporation (NASDAQ:MSFT) enjoyed higher revenues each and every quarter is gone for good. Apple and Google have effectively killed the PC with the introduction of the iPad and Android-based tablets.
The software king
Microsoft Corporation (NASDAQ:MSFT) has reported earnings, but they came in well below the analysts’ consensus.
Revenue rose by 13% to $19.8 billion, from $18.0 million for the fourth quarter of fiscal year 2013. Its net income was $4.96 billion, or $0.59 per share, up from a net loss of $492 million, or $0.06 per share. Although it may seem a great quarter in general, it is not. The information here is misleading. Here is why.
Windows 8 was released last year, but the fourth quarter 2012 earnings statement did not include revenues from Windows 8. Therefore, we are comparing a release-year against a non-release-year. To compare apples with apples, we must look at the fourth quarter of 2010 because the Windows 7 was released on October 2009.
For the fourth quarter 2010, strong Windows 7 sales drove revenues to 23% growth, and 30% operating income growth. At that time, 15% of the PCs were running on Windows 7 already.
Conversely, according to NetMarketShare.com, a website that gathers data from users surfing the web, only 5% of users had Windows 8 installed on their computers. Conversely, 37% of users still use the “outdated” Windows XP, and 44% have Windows 7 installed on their computers.
Microsoft Corporation (NASDAQ:MSFT) is trying to come up with an operating system that is appealing to users. Therefore, Windows is being updated to Windows 8.1 “Blue.” The OS will incorporate some of the features from previous versions such as the “Start Button.”
On the positive side of things for Microsoft Corporation (NASDAQ:MSFT), the company has diversified to the video gaming sector. The third version of the Xbox should be released to the public in the second half of 2013. Although it will likely face competition from Sony Corporation (ADR) (NYSE:SNE) Playstation for market share, I believe revenues should pick up in the interim.
This will partially offset the low revenues from the software section, particularly the Windows division.
Other companies that were kings…
Intel Corporation (NASDAQ:INTC) was also the processor chips king in the PC industry. Although it faces competition from Advanced Micro Devices, Inc. (NYSE:AMD), Intel Corporation (NASDAQ:INTC) has many loyal customers. Its products are top-end quality with high processing speeds, although they come with a premium price too. Nonetheless, most of the computers use Intel Corporation (NASDAQ:INTC).
Although there are no new players in the PC processor chip race, the sales of Intel declined according to its most recent earnings report. Its revenue declined from $13.5 billion to $12.8 billion. Its net income declined by 25% from $2.8 billion, or $0.54 per share, to $2.0 billion, or $0.39 per share.
Intel Corporation (NASDAQ:INTC) reported declining volume sales and declining prices for notebooks and desktops. Therefore, it is time for the processor chip to diversify and expand to other markets. The tablet industry seems to be a good market for Intel Corporation (NASDAQ:INTC). However, there is tough competition already from ARM Holdings plc (ADR) (NASDAQ:ARMH).