Microsoft blames constrained chip supplies for PC market slowdown

Microsoft Surface Studio 2
Dan Baker/Digital Trends

Despite a strong second quarter of the 2019 fiscal year, Microsoft’s earnings were weighed down by a slowing PC market. Microsoft reported a 5 percent decline year-over-year in revenue of its Windows license to manufacturing partners, suggesting that PC makers aren’t selling as many PCs as anticipated. This slowdown, the company explained, also had an effect on the consumer Office business, which grew just 1 percent year-over-year.

“In Windows, the overall PC market was smaller than we expected, primarily due to the timing of chip supplies to our OEM partners, which constrained an otherwise healthy PC ecosystem,” Microsoft Chief Financial Officer Amy Hood said in the earnings call, likely referencing some of the widely reported supply constraints that Intel has been facing as it migrates to a sub-12nm manufacturing process. In fact, Hood blamed poor Windows original equipment manufacturer (OEM) licensing revenues on the timing of chip supplies that were delivered to OEM partners, and this, in turn, affected Microsoft’s Pro and non-Pro Windows revenue growth. Broken down, Windows Pro licensing revenue declined by 2 percent, while non-Pro revenue declined by 11 percent. 

Even with a slowing PC market, Microsoft’s Surface business showed strong growth. “Surface had its biggest quarter ever this holiday,” Microsoft CEO Satya Nadella boasted on the call, noting that Surface revenue increased by 39 percent. Microsoft launched the Surface line with the debut of the Surface Pro and Surface RT in 2012, and today the Surface family also includes the Surface Book, Surface Laptop, Surface Studio, Surface Go, Surface Hub, and accessories like the Surface Headphone, Surface Pen, Surface Type Cover, Surface Mouse, and Surface Dial.

The strength of the Surface business has led Microsoft to adjust its revenue guidance for the third quarter. Hood noted that the company is experiencing a shift in revenue from Windows licenses to Surface and gaming, primarily due to the continued chip supply constraints. Gaming revenue increased by 8 percent, and in particular, Xbox software and services revenue increased by 31 percent. Hood credited “strength from a third-party title” for the growth in gaming, but she did not give specifics.

Earlier this year at CES 2019, chipmakers AMD and Intel both announced new chipsets that will lead to powerful and more efficient PCs, and Nvidia also announced new mobile-centric graphics cards that will help accelerate PC gaming. Nvidia‘s and AMD’s new GPUs will likely help to accelerate Microsoft’s investments in gaming, but it doesn’t sound like Hood was very optimistic about the overall state of the consumer PC market. Another potential cause for the slowing PC market, and one that Microsoft didn’t touch on, is that Microsoft’s Surface business is becoming a strong competitor to PCs made by traditional partners, like Acer, Asus, Dell, HP, Lenovo, and Samsung. If consumers are choosing Surface over PCs from OEM partners, then Surface could also be cannibalizing traditional PC sales, and this could be why Microsoft is experiencing a decline in Windows OEM licensing revenue.


Inside Xbox reveals big changes to Gears 5 Horde Mode at Gamescom 2019

Microsoft and The Coalition officially revealed the Horde mode for Gears 5. It mixes up the formula with the addition of Ultimate abilities and power taps force you to change your location.

Microsoft Surface Pro 6, Surface Book 2 throttled to 400 MHz by safety feature

The Microsoft Surface Pro 6 and Surface Book 2 are suffering from throttling issues that are slowing them down to 400 MHz. The problem is apparently related to an Intel CPU flag that is designed to keep systems from overheating.

PS4 Slim vs. Xbox One S: Spec comparison

Microsoft's new Xbox One S and Sony's PlayStation 4 "Slim" have bucked the generational gaming console trend. But which of these stopgap systems is worth spending your paycheck on?

Apple MacBook Air vs. Microsoft Surface Pro 6

The MacBook Air was updated with more contemporary components and a more modern design, but is that enough to compete with standouts like Microsoft's Surface Pro 6 detachable tablet?

The best Chromebook deals available in August 2019

Whether you want a compact laptop to enjoy some entertainment on the go, or you need a no-nonsense machine for school or work, we've smoked out the best cheap Chromebook deals -- from full-sized laptops to 2-in-1 convertibles -- that won't…

The 2018 Apple iPad Pro Wi-Fi tablet gets a huge $124 discount on Amazon

If you have been holding off on buying the Apple iPad Pro because of its price, now is the time. The best tablet for 2019 gets a $124 discount on Amazon today. This deal is more affordable than the one we previously found.

AMD Ryzen and Nvidia GTX join forces in HP Pavilion laptops and desktops

The HP Pavilion range has two new entries that are perfect for anyone looking for their first dedicated gaming system but don't have a fortune to spend. You even get AMD and Nvidia hardware in the same system.

Stuck in ELO hell? HP’s A.I. coach wants to help Omen owners become better gamers

HP has an exciting new update for its Omen Command Center software: A.I. coaching driven by machine learning. It uses the power of A.I. and analytics to figure out where you can best improve in your favorite game.

Visually stunning HP Omen X 27 HDR TN display closes color gap with IPS monitors

The HP Omen X 27 could prove to be the sweet spot for gamers everywhere. At a 1440p resolution, it's blazingly fast, with a 240Hz refresh rate and a 1ms response time. Better yet, its HDR support really helps colors pop.

Windows Core OS: Everything you need to know

Known as Windows Core OS, a new version of Windows will be a single universal operating system for all kinds of devices. It's expected to look very different, and here's what we know.

From Air to Pro, here are the best MacBook deals for August 2019

If you’re in the market for a new Apple laptop, let us make your work a little easier: We hunted down the best up-to-date MacBook deals available online right now from various retailers.

The best web browsers for 2019

Choosing a web browser for surfing the web can be tough with all the great options available. Here we pit the latest versions of Chrome, Opera, Firefox, Edge, and Vivaldi against one another to find the best browsers for most users.

Microsoft’s new Chromium Edge browser has entered beta. Here’s how to get it

Microsoft's Chromium-based Edge browser has been downloaded over 1 million times. In this guide, we'll explain how you can download and install the browser on your PC or Mac in just a few quick and simple steps.

Dell Latitude 7400 2-in-1 vs. ThinkPad X1 Yoga

The Dell Latitude 7400 2-in-1 and the Lenovo ThinkPad X1 Yoga Gen 4 are both well-built and equipped business 2-in-1s. Which is better comes down to their displays and battery life advantages.