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Commentary: Standing tall amid the slump

Microsoft's deep pockets and involvement in businesses other than those focused on desktop products should enable it to withstand the current PC market slowdown.

    By David Smith, Gartner Analyst

    With some $20 billion in cash, Microsoft is in a pretty good position to weather most storms.

    Although its results are tied to PC sales, the company is not as dependent on the PC market as Intel or other hardware manufacturers. And the PC sector is definitely in a slump. Because of a maturing market and a downturn in the economy, the U.S. PC industry saw shipments decline 3.5 percent for the first quarter of 2001, according to results just released by Gartner's Dataquest unit.

    However, Microsoft's deep pockets and involvement in businesses other than those focused on desktop products should enable it to withstand the current PC market sluggishness.

    Every component of Microsoft's overall strategy is at a unique point. With its operating system and Office applications businesses, Microsoft faces two challenges. First, the market is already largely saturated with those Microsoft products. Second, many customers have postponed their upgrades to await indications that the economy has improved. In general, Microsoft will have to balance persistence and patience.

    The company's .Net strategy is just getting off the ground and will not have a huge effect on profits within the next six months. Microsoft must get better at clarifying the .Net initiative, which it has promoted inconsistently. For example, the .Net label is applied to products bearing little resemblance to the .Net concept, while other products seem to shy away from using the name. As a result, potential customers may be confused and a bit intimidated by a perceived complexity. Gartner believes that Microsoft should better explain .Net in more sharply focused marketing messages.

    See news story:
    Microsoft steers clear of PC slowdown
    Meanwhile, MSN is well along in its fourth iteration and is growing nicely. However, MSN is still relatively small in the grand scheme of things, especially for a large company such as Microsoft. In the electronic game console business, Microsoft's Xbox--to be released later this year--may squeeze profit margins but will add to the company's revenue, particularly after a good holiday season.

    Microsoft does a lot of things right. By focusing on its core competencies, such as its relationship with developers, Microsoft will continue to build its new role as industry visionary stemming from its .Net vision.

    (For related commentary on Microsoft's operating systems, see TechRepublic.com--free registration required.)

    Entire contents, Copyright © 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.