Newest forecast kicks Windows' rebound further down the road

Lousy PC sales, Microsoft's refusal to complete in small-tablet market contribute to another downgrade of Windows device estimates

Gartner this week downgraded its Windows device shipment forecast for the second time this year, saying that while Microsoft's platform is still expected to rebound in 2014, its climb out of an historic PC slump will happen at a slower pace.

For 2013, Windows' share of the operating systems on all "smart devices" -- smartphones, tablets, PCs and PC-tablet hybrids -- will drop 4.3% compared to the year before, double the 2% decline predicted four months ago by the research company.

The culprits: Smaller tablets and a longer- and larger-than-expected slump in traditional PCs.

"The decline [in the revised forecast] is from the pure-tablet side of things," Carolina Milanesi, an analyst with Gartner, said in an interview. "The lower end of the tablet [market] is driving that market, and Microsoft is really not playing there."

By "lower-end," Milanesi means lower-priced tablets, which are almost exclusively the smaller-sized devices with screens of 7 inches or 8 inches. Microsoft, which is in the tablet space with its own Surface line, has declined to compete in the petite form factor; for the most part, so have its OEM (original equipment manufacturer) partners. Dell, for example, only just announced the Venue 8 Pro, an 8-in. tablet powered by Windows 8.1 and an Intel Atom processor, part of the family code-named "Bay Trail." The Venue 8 Pro won't start selling until next month.

Earlier this year, Gartner expected that Microsoft and OEMs would compete in the smaller-size tablet market. That didn't happen, or not to the extent the researcher forecast.

But Windows will turn things around in 2014, growing its share 9.7% year-over-year to nearly 367 million devices. The numbers, however, were smaller than Gartner's previous estimate of an 11.4% gain to 378 million units, because of the lower 2013 number as well as the research firm's anticipation that the OS will remain a minor player in the hot 8-in. tablet segment.

Gartner's forecast Monday was more bearish than either of its last two, first in April and then again in June. According to Gartner's April estimate, the various editions of Windows were to climb 2.3% in 2013 and an additional 12.2% in 2014.

What happened?

First of all, data on two more quarters arrived, and showed that the traditional PC business -- laptops and desktops -- was continuing to contract. Gartner is now predicting that PC shipments will slide more than 11% for the year; even when the "ultramobile" category is included, a group that includes the radical tablet designs that can convert into a notebook with some kind of physical manipulation or an added keyboard, the decline will be around 8%.

Microsoft's fundamental problems haven't changed in the last four months, said Milanesi. The company overwhelmingly relies on the shrinking traditional PC market -- 85% of Windows device shipments are in that category -- and it has yet to show how it will gain ground in either smartphones or tablets.

Microsoft's share of all computing devices -- personal computers, tablets and smartphones -- has stagnated even as Apple's and Google's are expected to climb once again in 2014. (Data: Gartner.)

"Consumers are not prepared to spend that kind of money [for Microsoft's Surface tablets]," Milanesi said, pointing to the higher-priced Surface Pro 2, which starts at $899. Microsoft's other tablet, the Surface 2, nee Surface RT, was a disaster this year, with sales so sluggish that the company had to eat a $900 million write-off in July.

The Redmond, Wash. firm has been hampered by its stubborn Surface strategy, which emphasizes the devices as 2-in-1s able to serve both tablet and notebook masters. Milanesi was leery of the pitch, not because the new Surface tablets failed as hardware, but because customers haven't decided that it's smart to own one expensive device rather than tote around a pair of cheaper alternatives.

"The ultramobile and hybrid category will capture a lot of interest and advertising, but not much money," said Milanesi. "The holiday season will be all about smaller tablets."

Even smartphones, where Microsoft will play as an OEM for the first time early next year -- assuming it wraps up its acquisition of the handset portion of Finland's Nokia -- won't be as big in the fourth quarter as they have in past years. "Smartphones will very obviously not be at the top of Santa's list this year; cheaper tablets will," said Milanesi.

Gartner isn't alone in its continued pessimism about Windows' recovery; Rival researcher IDC's forecast for the third quarter pegged the PC downturn at 7.6% year-over-year, the sixth-consecutive quarter that shipments shrunk. Sales to consumers plunged again, with business purchases making up some, but not all of the slack.

For 2013, Gartner predicted that Windows devices will account for 14.3% of the 2.3 billion total; that share will rise slightly to 14.6% in 2014. Meanwhile, rival Apple will narrow the gap, ending with a 11.7% share this year but with an expected 13.6% share next year, all on the back of smartphones and tablets.

Both will be dwarfed by Google's Android, which will power 38% of all smart devices in 2013, and 45% in 2014.

Gartner and others, notably IDC, have repeatedly had to revise their projections as the numbers worsened through 2013. Each time they have predicted that the PC business -- and thus Windows' fortunes -- will turn around at some later date, whether the next quarter or the next half of a year, they've had to push that timetable further into the future.

A second-half of 2013 recovery, for instance, was pushed into the first half of 2014, then deeper into next year, and finally into 2015. PCs-plus-ultramobiles, just four months ago expected to rally by 1% next year, are now forecast to be flat.

"Windows remains a challenged OS," said Milanesi, citing the usual suspects, including a lightly stocked app store compared to Android and iOS. "They need to fix that...somehow."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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Tags GartnerDellMicrosofthardware systemsWindowssoftwaretabletsinteloperating systems

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