Tech

Microsoft sees opportunity in old computers that still need to be upgraded from Windows 7

Key Points
  • The Windows 7 upgrade cycle is not as far along as it usually is this far along, Microsoft finance chief Amy Hood said on Monday.
  • Around 23% of Windows desktop machines are still running Windows 7.
Amy Hood, CFO of Microsoft
CNBC

Microsoft still sees plenty of opportunity to for customers to upgrade machines from Windows 7 to Windows 10,  and not only because of coronavirus fallout.

Usually, Microsoft sees a pronounced increase in revenue around the time it ends support for an older version of its Windows operating system as individuals and companies buy PCs with the latest from Microsoft. Then, over time, the impact tails off, making for tougher year-over-year upgrade comparisons.

It's taking longer this time around, which could spread out the revenue generated from the upgrade process to additional quarters. Analysts watch Windows revenue closely, as it gives Microsoft 15% of its revenue and meaningful profit.

Amy Hood, Microsoft's finance chief, indicated to analysts in January that China's public health situation and a chip shortage could be factors in the prolonged Windows refresh cycle.

At the time, she issued a quarterly revenue guidance range for the business segment including Windows that was wider than usual to reflect impact from the coronavirus in particular. Then, last week, in the midst of a market selloff, Microsoft said it did not expect to reach that guidance range, sending Microsoft and other stocks lower.

The cycle is not as far along as it usually is at this point in the timeline, Hood said on Monday during a conversation with Morgan Stanley analyst Keith Weiss at Morgan Stanley's Technology Media and Telecom conference in San Francisco.

Microsoft ended support for Windows 7 in January.

Here's what Hood said:

I think, in general, these cycles tend to look similar. But what I would say is this one is certainly more complicated by a number of things that I'll talk about in a second. What is different about this is there still remains quite a bit of opportunity more than we saw at this point in the prior cycle. A lot of that exists where you would expect it to exist, which is small and medium business segment. Not unusual, but it means that we do have some room to continue to grow and likely means that the curve will look different than last time in terms of its shape.

Now, then you add to it two complicating factors, one of which you brought up, which have been chip supply, which has impacted some of the growth rates over the past bit. And then, the second one which is the supply chain currently in China in terms of bindings and productions. And so those will — and as we've talked about, will impact the quarterly results. And so I'm not sure it'll look like the exact same curve in terms of the prior cycle, not just because we have a little bit more left to go than we have had in prior cycles, but also because it's been a bit more volatile due to those two issues as we work through them.

Microsoft released Windows 7 in 2009. Other than Windows 10, it's the most popular version of Windows on desktop, with about 23% share in February, according to Statcounter. Windows 8 and Windows 8.1, which came out in 2012 and 2013, respectively, are less widely used than Windows 7. Microsoft said in 2018 that there were 1.5 billion Windows devices.

"I feel great that we're executing well on end of support," Hood said on Monday, speaking of older versions of Windows PC licenses and other products. "It builds a great funnel for us as we think about transition to the cloud for customers and helping them on their hybrid journey."

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