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No Sales Pop for a New Version of Windows

By Nick Wingfield | Decemeber 24th, 2012

BELLEVUE, Wash. — It used to be that a new version of the Windows operating system was enough to get people excited about buying a new computer, giving sales a nice pop.

Not this time. Windows 8, the latest edition of Microsoft's software, failed to pack shoppers into a Microsoft store in a mall here last week, at a time when parking lots in the area were overflowing. The trickle of shopping bags leaving the store with merchandise was nothing like the steady stream at a bustling Apple store upstairs.

Claude Ballard was among the customers at the Microsoft store who tried out Surface, a new Microsoft-designed Windows tablet. Mr. Ballard, who described himself as a "semiretired" computer systems manager for a real estate firm, said he was intrigued by the eye-catching design of Windows 8 — but not enough to scrimp to buy a new computer this year.

"It's economics, really," he said. "It's going to be a better year for my mechanic than it is for me."

Weak PC sales this holiday season suggest that the struggles of Microsoft and other companies that depend heavily on the computer business will not abate soon. Plenty of consumers already own PCs and seem content to make do with what they have, especially in a shaky economy in which less expensive mobile devices are bidding for a share of their wallets.

While there are also many tablets running Microsoft's new, touch-friendly Windows, they have so far failed to emerge from the shadow of competing products from Apple and Amazon and other devices that are being snapped up by holiday shoppers.

Emmanuel Fromont, president of the Americas division of Acer, the world's No. 4 PC maker, said sales of the company's Windows 8 PCs had been lower than expected. He said one factor was the system's unfamiliar design, which appeared to be making consumers cautious.

"There was not a huge spark in the market," Mr. Fromont said. "It's a slow start, there's no question."

The clearest evidence of Windows 8's disappointing introduction comes from the research firm NPD, which estimates that sales of Windows machines have actually dropped from a year ago.

According to NPD, stores in the United States sold 13 percent fewer Windows devices from late October, when Windows 8 made its debut, through the first week in December, than in the same period last year.

Those figures do not include sales in Microsoft's own stores, which were the only place to buy a Surface tablet during that period, but because the stores are scarce, analysts believe it is unlikely they made a big difference.

"I think everybody would have hoped for a better start," said Stephen Baker, an analyst at NPD. "The thing is, this market is not the same market that Windows 7 or Vista or even XP launched into."

Those earlier versions of Windows all came out during periods when the PC's status as the center of computing seemed far more secure. In the intervening years, smartphones and tablets have become much more serious rivals for a share of consumer spending on technology. Sales of PCs have been declining for much of the year.

While most people are not getting rid of their PCs altogether in favor of mobile devices, analysts believe they are postponing purchases of new ones.

"What you're seeing is not a retirement of PCs, but a push-out in the replacement cycle," said A. M. Sacconaghi, an analyst at Sanford C. Bernstein. "If people used to buy PCs every four years and are now buying them every five years, that could lower PC sales by 20 percent over time. That's substantial."

Mr. Sacconaghi predicted that global PC shipments would be down 3 percent in 2012.

The shift in spending to tablets is one reason that Windows 8 is so critical for Microsoft's future. The company overhauled its operating system with a radically different, tile-based interface that is easier to navigate on touch-screen devices. Microsoft intends the software to be flexible enough that it can still be used on conventional laptops and desktops, including newer models with touch screens.

But the changes have disappointed a lot of reviewers and interface design experts, who have focused in particular on the potentially confusing coexistence of the new tile interface alongside the old desktop one.

Mr. Fromont of Acer said he thought there would be more excitement around PCs when more of the devices on store shelves had touch screens. Only 15 percent of Acer's current Windows 8 products in North America have touch screens, he said.

Mark Martin, a spokesman for Microsoft, declined to comment, referring to past statements by Microsoft executives arguing that because Windows 8 is such a big shift, its rollout cannot be fairly judged over one shopping season.

The company says it sold 40 million copies of Windows 8 during its first month on the market, a figure that includes upgrade discs sold to consumers and copies installed on new machines by PC makers.

Apart from Acer, PC manufacturers showed little interest in discussing holiday sales of their products. Representatives for other big PC makers, including Lenovo, Dell, Hewlett-Packard, Asus and Toshiba, either declined to comment on sales or did not respond to requests for comment.

Bill Calder, a spokesman for Intel, which provides the microprocessors at the heart of most PCs, did not dispute that PC sales had been slower than hoped for this holiday season, but he predicted that new Windows 8 devices coming out next year would change that. "We're excited about the prospects," Mr. Calder said.

Big retailers of PCs were also mostly silent on their holiday sales. Jeff Haydock, a spokesman for Best Buy, said Windows 8's effect on PC sales had "met our expectations." Abt Electronics, a Chicago-based retailer, painted a more positive picture, estimating that unit sales of computers were up 13 percent so far this year.

Amazon's list of its 100 best-selling electronics products offers a telling overview of the must-have devices for this holiday season: tablets like Amazon's Kindle Fire HD and Apple's iPad. On Friday afternoon there were just five computers on the list, all laptops, including two from Apple that cost more than $1,000. Only one laptop on the list came with Windows 8 as an option, while another ran Windows 7.

Brendan Barnicle, an analyst at Pacific Crest Securities, said tablets were sapping the growth of laptops, which represent the biggest chunk of computer sales. "Tablets are doing to the laptop market what laptops did to the desktop market," he said. "They're not going away."

At a cavernous Best Buy store in Tukwila, Wash., last week, displays of mobile devices like the Kindle Fire HD and the iPad were much more crowded than the displays of Windows 8 devices arrayed around a much bigger section of the store. Hunched over a Windows 8 laptop was Jeff Lindstrom, a resource specialist at a Y.M.C.A. in Seattle, who said he needed to buy a computer that day for a youth program.

He didn't care for the design of Windows 8 himself, though, and said he had no plans to replace his own six-year-old laptop. "I'm not impressed," Mr. Lindstrom said. "It's such a different direction than what I'm used to."

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