Windows sales defy predictions, grow 4%

All credit to businesses upgrading to Windows 7, says MicrosoftComputerworld - Stronger-than-expected sales of Windows helped Microsoft post a 6% increase in revenue for the first quarter of 2012, the company said yesterday.

The Windows and Windows Live division brought in $4.6 billion during the three months ending March 31, an increase of 4% over the same period the year before.

That was a turnaround of sorts: Windows' revenue for the quarter was just $112 million less than sales during the last three months of 2011, traditionally a strong quarter in the calendar because of holiday purchases of PCs. But in 2011's fourth quarter, Windows revenue was down 6% compared to the year before.

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Business purchases of PCs -- Windows' revenue is directly tied to the sale of new machines -- fueled the gain, with system sales to companies up 8% year-over-year, while consumer computer sales, long sluggish, remained flat.

"The business PC is what really drove the Windows business," said Peter Klein, Microsoft's chief financial officer Thursday during an earnings call with Wall Street analysts.

Most analysts had expected a poorer performance, largely on the projections by Gartner and IDC, which initially predicted a PC sales slump but then last week raised their estimates, saying that shipments actually increased about 2% in the quarter.

Microsoft estimated that PC sales grew between 2% and 4% during the quarter.

PC sales have struggled to match previous periods because of tougher competition from tablets and smartphones for consumer dollars, and the lingering effects of a hard disk drive shortage sparked by flooding last year in Thailand.

The Windows group accounted for 27% of the company's revenue for the quarter, second behind the Business division, which handles the Office line. Windows' piece of the pie was larger than the previous quarter -- the division contributed 23% of all revenue in the last three months of 2011 -- but slightly less than the same period a year before.

Windows 7 continued to gain ground among corporate users, said Klein, who claimed that 40% of all enterprise desktops were running the OS. Klein did not name a source for that number, but Net Applications, which Microsoft's IE team regularly cites, said that 41% of all machines running Windows worldwide last month did it with Windows 7.

As executives touted the strong sales for Windows 7, they also, although only in the broadest strokes, reminded analysts of the upcoming Windows 8.

After noting that the next fiscal year -- which runs July 1, 2012, to June 30, 2013 -- will include an "unprecedented refresh" of the company's core products, Klein was upbeat about Windows 8, even though customers have seen only a beta of the desktop version and nothing at all on ARM.

"With Windows 8 and its availability on both x86 and ARM, we believe the ecosystem will capitalize on the new range of capabilities and scenarios Windows 8 enable," said Klein in prepared remarks.

Although executives divulged no new information about Windows 8's release date during yesterday's conference call, Bill Koefoed, the general manager of Microsoft's investor relations, said that the development of Windows 8 and Windows RT -- the official name for the version designed for ARM processors -- is "on our schedule."

Klein dodged a question from one analyst about revenue swings later this year caused by Windows 8 upgrade giveaways. "We haven't said anything and will not today, but we'll have more to talk about in terms of programs and promotions as we get closer to the launch date," Klein said.

With Windows 7, Microsoft offered free or nearly free upgrades to people who purchased a new Vista PC in the months before and after its launch. The company also aggressively discounted Windows 7 upgrades during a two-week pre-sale period. Microsoft may repeat one or both of those promotions with Windows 8.

If it does, the deals will impact the bottom line: Two years ago, Microsoft deferred $1.7 billion in revenue to account for the Windows 7 upgrades due Vista PC buyers.

Klein also sidestepped a question about whether Windows XP's looming retirement will create additional incentive to upgrade to Windows 7, or even Windows 8, and accelerate sales of those editions. "Obviously, it's high on the priority list for CIOs to upgrade their business desktop [from XP]," said Klein. "Exactly how that will play out over the next couple of years is hard to say."

XP will fall off Microsoft's support list in early April 2014.

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End of Windows XP support era signals beginning of security nightmare

Consumer, corporate and even SCADA systems could be at risk when Microsoft stops supporting Windows XP.

Microsoft’s recent announcement that it will end support for the Windows XP operating system in two years signals the end of an era for the company, and potentially the beginning of a nightmare for everyone else.

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When Microsoft cuts the cord on XP in two years it will effectively leave millions of existing Windows-based computers vulnerable to continued and undeterred cyberattacks, many of which hold the potential to find their way into consumer, enterprise and even industrial systems running the latest software.

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Jason Miller, manager of research and development at VMware, says the introduction of Windows XP “was the hey-dey of buying computers,” with markets having become familiar with Windows 95 or 98 and manufacturers like Dell releasing affordable options. With such an influx of new users, it comes as no surprise that Windows XP remains one of the most common operating systems despite the introduction of two entirely new versions in the decade since it hit shelves. In fact, March 2012 statistics from NetMarketShare.com show XP in the lead for operating system market share, at 43.09%.

Although that number is on a steady decline, its high volume just two years before support is cutoff is cause for concern, Qualys CTO Wolfgang Kandek says. Most enterprises are likely to upgrade their operating systems in the wake of the announcement that XP support would be cutoff. They have plenty of reasons to, such as security concerns raised by the IT department or the need for the latest version of Word or Excel to open new document formats.

Remaining consumers, though, will be much less inclined to make an upgrade.

Several trends account for this. First, and foremost, is cost. At-home computer users who are still content with XP are unlikely to purchase a new operating system without any financial incentive, especially considering that many of the features for Windows 7 require hardware upgrades. Try telling someone who uses their home computer to just check their email and read the latest Yahoo News headlines that they need to spend $500 for a new one.

Then there’s the awareness issue. How many at-home consumer users will even know that Microsoft will be cutting off XP support? How many will know what “the end of support” means for them at the user level, and how many will actually care? Microsoft is of course doing what it can to help spread the word, providing a deployment toolkit and its "Springboard Series" to hold its users hands through the process. Microsoft can only lead these XP-running horses to water, though. It can’t make them drink it.

Finally, the burgeoning tablet market could present a roadblock to PC software upgrades. Amol Sarwate, director of Vulnerability Labs for Qualys, says that many entertainment-minded users who purchase a tablet may still have XP-based PCs still kicking around their homes.

“If I have a Windows XP machine and I go buy a new tablet, for most of my needs I will use my tablet, but I still keep my XP machine for doing some chores that only a desktop can do. So that could also play a role here,” Sarwate says.

Although most of the subsequent security issues appear to be at the consumer level, it may not be long until they find a way into corporate networks or industrial systems, Miller says.

“Where do you think all these botnets are set up? They’re not set up on the corporate computers,” Miller says. “They’re set up on my grandmother’s computer, my mother’s computer, and they don’t even know its running because they’re running vulnerable software out there.”

Even scarier, Sarwate says many SCADA systems for industrial networks still run a modified version of XP, and are not in a position to upgrade. Because much of the software running on SCADA systems is not compatible with traditional Microsoft OS capabilities, an OS upgrade would entail much more work than it would for a home or corporate system.

“A lot of these systems are connected to critical infrastructure and that particular SCADA software running on Windows XP has to be first upgraded to a new operating system,” Sarwate says. “So there is a SCADA vendor also in this picture and some SCADA software and hardware which is already configured in plants, factories or critical infrastructure. So in the typical SCADA environment I don’t think Microsoft could encourage people to upgrade because the problems there are completely different.”

In a blog post, Sarwate also highlighted the dangers inherent in many SCADA systems stemming from an inadvertent connection to the public internet. Many companies are under the impression that their SCADA networks are disconnected from others, Sarwate wrote, when in fact they may be just as susceptible to malware as corporate or at-home desktops.

“A search for ‘data presentation and control’ software on the internet yields SCADA systems with management services exposed to the internet,” Sarwate wrote. “If an organization's SCADA network is not securely connected with the IT network, worms can jump from the HR desktops or reception kiosk into the SCADA network.”

Of course, there are other factors to consider, including the notion that many XP users who will not be protected by Microsoft in 2014 most likely haven’t been deploying the patches Microsoft has issued since 2004. Similarly, Sarwate says that traditionally when Microsoft issues its monthly bulletins, “SCADA system administrators will not apply the patch.”

But at the same time the sophistication of cyberthreats appears to be evolving. Miller cited the increased intelligence of spam attacks, which used to make such obvious spam-like claims as discounts on designer handbags or erectile dysfunction medication, but have lately begun more frequently sending more fake, but seemingly legitimate, emails from UPS or Delta Airlines. By then, new attacks may be designed to leverage these outstanding XP devices without the knowledge of their owners nor the others that they infect, Miller says.

"If you’re writing viruses your main goal is to be non-intrusive. I do not blue-screen the machine. I do not crash the machine. I am on the machine silently. They do not even know I’m there. Hence the bot that runs," Miller says. "So there probably will be quite a few people that will be in a security nightmare in that aspect of it."

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