Microsoft Corp.'s Windows continues to be the world's most popular operating system for personal computers. The problem is that laptop and desktop sales have been slowing down while the demand of tablets has skyrocketed.

"Windows and Windows Live Division revenue declined 1% for the fourth quarter and revenue for the full year decreased 2%. Excluding the impact of the prior year Windows 7 launch and revenue deferral, we estimate full-year revenue growth was in line with PC market growth of 2% to 4%," Microsoft said in a press release announcing its latest quarterly results.

Just more than six months after its emergence as successor to the highly disappointing Vista, Windows 7 is already facing declining sales. Microsoft has already sold 400 million units of the Windows 7 but the sales have been hampered by slow PC sales.
Although partly due to a shift by budget conscious consumers to the free-of-charge open source Linux operating system, the decline can be attributed to an increasing number of consumers opting for tablets over buying new PCS.

Non-Windows Tablets

"After strong growth in shipments of consumer PCs for four years, driven by strong demand for mini-notebooks and low-priced consumer notebooks, the market is shifting to modest, but steady growth, said Mikako Kitagawa, principal analyst at Gartner, last week. "The slow overall growth indicates that the PC market is still in a period of adjustment, which began in the second half of 2010."
"Given the hype around media tablets such as the iPad, retailers were very conservative in placing orders for PCs. Instead, they wanted to secure space for media tablets. Some PC vendors had to lower their inventory through promotions, while others slimmed their product lines at retailers," Kitagawa added.

PC manufacturers -- whose desktops and laptops end up with the Windows operating system more than 90% of the time -- are investing in developing media tablets. Hewlett Packard this month released the Wi-Fi version of HP TouchPad ($500 for the 16 GB unit), Netbook pioneer Asus' has released the Eee Pad, and Internet protocol-based networking provider Cisco Systems Inc. has launched the Cisco Cius ($750). Even smartphone makers have joined the fray -- BlackBerry maker Research In Motion's PlayBook, Apple nemesis Samsung Electronics Inc.'s Galaxy Tab, HTC's EVO View 4G, and Motorola Mobility Holdings Inc.'s Xoom have been released in the market.

However, the biggest problem for Microsoft is that Apple controls more than 80% of the tablet market. Apple's iPad runs on the iOS, Apple's own operating system. Apple sold 9.25 million iPads during the past three months, a 183 percent unit increase over the year-ago quarter.

In addition to the fact that the non-iPad tablets have barely made a dent in the market, most of these tablets are not running on Windows -- they're running on Google's Android operating system or the vendors' own OS. As an example, while HP's own PCs usually have Windows, the HP Touchpad uses HP's own Palm WebOS.

Record Sales

Not all is dim for Bill Gates and Microsoft right now.

Microsoft Corp. yesterday reported record fourth-quarter revenue of $17.37 billion for the quarter ended June 30, 2011, an 8% increase from the same period of the prior year. Net income for the quarter was $5.87 billion, a 30% increase when compared with the prior year period.

For the fiscal year ended June 30, 2011, Microsoft reported record revenue of $69.94 billion, a 12% increase from the prior year. Net income was $23.15 billion, which represented and increase of 23%.

Microsoft's business division revenue grew 16%, its servers segment grew 12%, and its online services division (including Bing's 14.4% market share) grew 15% year over year. Office 2010 continues to be the fastest-selling version of Microsoft Office in history with over 100 million licenses sold. In June, Microsoft released Office 365 with familiar Microsoft Office collaboration and productivity tools delivered through the cloud.

However, the largest growth came from Microsoft's entertainment & devices division, which grew 45% for the full year. This is due to the ongoing momentum of the console, Kinect, and Xbox Live.

The Xbox

Xbox 360 has been the top-selling game console in the U.S. over the past twelve months. At E3 in June, Microsoft highlighted its upcoming game lineup, Xbox Live content partnerships, and enhanced content discovery using Bing and Kinect.
Kinect is the motion sensing input device launched by Microsoft in November last year to counter the popularity Nintendo Wii's.
At the Electronic Entertainment Expo (E3) in Los Angeles, California, in June, Electronic Arts unveiled these new Xbox 360 titles: Battlefield 3, Mass Effect 3, Kingdoms of Amulur: Reckoning, Need for Speed The Run, FIFA Soccer 12, and Madden NFL 12. 505 Games revealed these Kinect for Xbox 360 exclusive titles: Michael Phelps: Push the Limit, combat shooter Blackwater, and singing and dancing game Grease. Also upcoming from 505 games, though also available in other platforms, are Supremacy MMA, WRECKED: Revenge Revisited, Backbreaker Vengeance, and Rugby World Cup 2011. Activision will be releasing later this year Call of Duty: Modern Warfare 3 and soon Call of Duty Elite, Skylanders Spyro's Adventure, PROTOTYPE 2, Spider-Man: Edge of Time, X-Men Destiny, Transformers: Dark of the Moon.

Windows on tablets and smartphones

In the future, Microsoft could get a revenue boost from smartphones and tablets - markets that have been elusive for the operating systems giant.

Microsoft has already signed a deal with Nokia to put the Windows operating systems in future Nokia phones. Nokia, still the world's largest vendor of mobile phones and smartphones, is replacing the Symbian with Windows. The Windows based phones will be launched in the fourth quarter of this year.

Microsoft has already unveiled a preview of the next version of Windows, codenamed Windows 8, featuring a new user interface and application experience. Windows 8 will likely be released sometime next year. Aside from aiming to lure back consumers to buying PCs with Windows 8, the new OS could also end up in tablets. Windows 8 will include a version designed to run on tablets powered by ARM's system-on-a-chip architecture.

Windows 8 will have, among other things, these "tablet" features:

* Fast launching of apps from a tile-based Start screen, which replaces the Windows Start menu with a customizable, scalable full-screen view of apps.

* Live tiles with notifications, showing always up-to-date information from your apps.

* Fluid, natural switching between running apps.

* Convenient ability to snap and resize an app to the side of the screen, so you can really multitask using the capabilities of Windows.