Windows 10 Is Great, but Microsoft Can't Save the PC

Microsoft's Windows 10 is a hit.

The Redmond tech giant's latest operating system has received almost universally positive reviews, and it's already been installed on 75 million PCs. Although it keeps the touchscreen functionality pioneered by its predecessor, it offers a more traditional interface than Windows 8, making it more amenable to most users.

Unfortunately, it doesn't seem that it will save the PC.

Photo: Microsoft

Even more declinesWhen PC sales first began their decline, many were quick to blame Microsoft. Falling PC sales predated the release of Windows 8, but the controversial operating system certainly didn't stop the slide. An executive at Samsung blamed its dwindling Ultrabook shipments on the "less-competitive" Windows platform.But Windows 10 is different. The Verge calls Windows 10 "hugely exciting." David Pogue, who harshly skewered Windows 8, praised Microsoft's "return to sanity" and plainly stated that "you are really are going to love Windows 10."

But research firms are not as optimistic.

IDC believes the PC market will contract yet again in 2015. IDC expects PC shipments to fall 8.7% on an annual basis, and continue to decline through 2016. If that occurs, it will mark five consecutive years of contracting PC shipments. IDC believes PC sales will pick up in 2017, but only because business users will look to replace their aging systems -- IDC believes demand for consumer PCs will continue to fall through the end of the decade.

ABI Research largely agreed with IDC in a similar report released earlier in August. ABI expects shipments of portable PCs -- netbooks, laptops, Chromebooks, and ultraportable PCs -- to remain flat in 2015. Chromebook shipments will grow (led by educational demand) but shipments of traditional notebook PCs are expected to fall 7%.

Microsoft is offering Windows 10 as a free upgrade to many Windows 7 and Windows 8 users. ABI Research believes this will reduce the demand for PCs, as owners of older systems make do with their existing machines. Research firm Gartner made a similar prediction last month. IDC cited that factor, but also broader economic trends and excess inventory.

Can Microsoft still succeed?Microsoft's management isoptimisticabout the future of the PC. Last month,on its quarterly earnings call, CEO Satya Nadella forecast renewed growth for the PC platform. "While the PC ecosystem has been under pressure recently, I do believe that Windows 10 will broaden our economic opportunity and return Windows to growth," he said.

Should that fail to take place, it's possible that Microsoft's stock could come under pressure. While Microsoft may not be monetizing Windows as heavily as it did in the past, the Windows platform is still significant for Microsoft's broader business. Microsoft has expanded its software and services to other platforms -- notably iOS and Android -- but it still benefits strategically from controlling the Windows ecosystem.

Yet, Windows 10 is quite different from its predecessors. It includes more integration with Microsoft's online services, including Bing and Xbox Live. Even if additional PCs are not being shipped and sold, greater engagement should benefit the firm. "Windows 10 creates monetization opportunities with store, search, and gaming," Nadella explained.

But for device makers, the situation could be quite different. Later this year, Hewlett-Packard willcleave itself in two, creating twoseparatecompanies focused on different businesses. One of those firms -- HP -- will derive around half of its revenue from sales of traditional PCs. If PC shipments continue to decline, that company could be devastated. Earlier this month, when Hewlett-Packard turned in third quarterearnings, its PC-related revenue contracted more than 13%.

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Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. The Motley Fool recommends Gartner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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