Is This the End for Steve Ballmer?

Intel and AMD both forecast that processor sales will be down for the quarter. Netbook manufacturers have been reducing orders, and AMD mentioned lack of notebook demand in North America and Western Europe.

PC sales will fall this quarter, and Microsoft will be selling Windows 7 to a smaller market.

Last quarter, Apple sold 3.27 million iPads and 3.47 million Macs for 8.0% of the combined market (see Did Apple Just Double Its Market Share?). That was up from 3.5% in the March quarter.

This quarter, over 4 million Macs looks likely, if the recent year-on-year increases keep up, as well as 5 to 6 million iPads. This will take Apple's share to over 10% of the PC/tablet.

The Impact on Microsoft

In the holiday quarter, Windows market share will fall again as iPad production ramps up and Android tablets start selling. By this time next year, Microsoft's share of the PC/tablet market could well be under 80%. Losing 15% to 20% in 12 months - after Microsoft reaped the benefits of having better than 96% market share for so many years - should make heads roll.

The iPhone has already forced out the CEOs of Nokia and LG Electronics. Their companies failed to respond to the iPhone fast enough and have lost share in smartphones. Yet Microsoft, with its OS second only to Nokia in smartphones when the iPhone launched, has fallen to irrelevance behind Nokia, RIM, Android and iOS (see The Microsoft Model Isn't Working for Smartphones).

Microsoft's slow response to the iPhone and iPad were a factor in HP buying the barely alive Palm to obtain its WebOS, and it probably cost Robbie Bach, then President of the Entertainment & Devices Division at Microsoft, his job. While sacrificing a lieutenant or two is reasonable for losing control of Microsoft's largest customer (HP) and its share of the mobile phone market, rapidly losing control of one of Microsoft's largest markets after Bill Gates recognised tablets as the future years ago will cost Microsoft CEO Steve Ballmer his job.

The Impact of the Economy

In times like these, when the economy isn't booming, people and businesses will hang on to their PCs for as long as is practical. That means continuing to use hardware they already have and software they are already familiar with. When the time comes to change, if iPad looks to be easier to use and reliable, with cheap, good software and it costs the same kind of money as a Windows PC or tablet, how many will choose Windows?

Microsoft always hoped that Windows 7 would be so attractive that it would clear up the Vista hangover, drive users to upgrade from XP, and stop bleeding customers to the Mac. The huge problem is that the Mac is a very attractive platform for Windows 7 users too, and if you want an attractive, well specified PC with good customer support, the price is competitive. So the bleeding is getting worse and many of those who move find they no longer need Windows.

Little Differentiation Among PC Makers

The problems at the PC makers run deeper. Mark Hurd has been criticised for cutting R&D at HP, but there is little to be gained from spending on making a better PC when you don't own enough of the technology to keep any gains for yourself. PCs are commodity computers that yield low profits, always at risk from price cuts by rivals and unexpected increases in component costs. This means that any real differentiation has to come from customer service, which (unlike Apple's) can't be built around already profitable local retail outlets.

Companies like Autodesk bringing AutoCAD back to the Mac* can only make the Windows situation worse. Architects can't afford the risk and expense of having project data wiped out by a virus, so they will move at least some of their AutoCAD licenses to Mac Pros. Large, powerful iMacs are well priced and attractive for showing pictures and details to clients, and if architecture firms find OS X users more productive, a sector used to buying expensive Windows workstations will progressively move to Mac.

Apple already controls the consumer market for $1,000-plus computers, and Windows can ill afford to lose business sectors like this.

A New Hope for Microsoft

However, all is not gloom and doom for Microsoft. Few in the Android market are making money, and even fewer have enough patents to protect them in the US market. If Oracle wins its Java suit against Google, Android will certainly carry a cost, and the more Microsoft forces the Androids to pay license fees for its own patents, the more attractive Windows Phone 7 looks.

Steve Ballmer could still escape from this mess if the iPad/Mac erosion is less than looks likely and there is a rush to Windows Phone 7 as the Android bubble deflates.

* An iOS version will let iPhone, iPad, and iPod touch users show and modify their CAD files anywhere. AutoCAD Release 11, the last version for Macs, was discontinued in 1992, and the current Windows version is Release 18.1.