It's Official: Microsoft Windows 8 Isn't Working

Many companies have been banking on Microsoft (MSFT 0.64%) Windows 8 to turn things around in the PC market. Many companies are going to be rather disappointed that the operating system isn't working out the way they hoped. The PC market still stinks.

The big picture
IDC has now released its estimates on PC shipments in the fourth quarter. This was quite an important quarter, as it marked the release of Windows 8. The new platform wasn't available throughout the entire quarter, as it was launched at the end of October, but it was powering many a device during the important holiday shopping season.

Total worldwide shipments came in at 89.8 million units, representing a year-over-year drop of 6.4%, which was worse than the 4.4% decrease that IDC was predicting. Windows 8 was unable to turn the tide of sluggish PC demand in the face of soaring smartphone and tablet adoption for consumer computing needs.

Hewlett-Packard (HPQ +1.43%) held on for dear life to its crown as the No. 1 PC vendor in the world by volume, shipping just over 15 million PCs during the quarter. Dell (DELL +0.00%) got hammered and saw units fall 20.8% to 9.5 million.

Source: IDC. Figures may not add due to rounding. YOY = year-over-year.

IDC said that vendors were so focused on pushing the touch-centric interface and implementation that some of Windows 8's other features related to security or reliability were lost in translation. Many consumers and companies alike remain on the sidelines waiting to see how adoption pans out.

Several Acer execs have said consumers are still confused about the whole thing. Acer CEO JT Wong, the same man that warned Microsoft to "think twice" before launching its competing lineup of Surface tablets, told AllThingsD, "The promotion of the product is really focused on the keyboard, and the users really don't know how to maximize the touch experience." Acer chief marketing officer Michael Birkin chimed in, "There was just a lot of messaging coming out at the same time: Windows 8, Surface, RT."

It's all a little much for the average consumer. IDC feels the same way, saying the PC market needs to improve its messaging this year.

Domestic digits
The domestic declines weren't as bad, with U.S. shipments declining by "just" 4.5% to 17.7 million. Apple (AAPL 0.39%) was essentially flat in the fourth quarter with just over 2 million Macs sold stateside, while Toshiba in particular fared particularly badly with units dropping by a third.

Source: IDC. Figures may not add due to rounding. YOY = year-over-year.

To add even more context to how Windows PCs fared in the U.S., we can back out Apple's figures to isolate them (assuming other platforms like Linux have negligible market share). Doing so makes the PC market look slightly worse, with units declining 5% as opposed to 4.5%. That being said, a lot of the sales in the fourth quarter were clearing out Windows 7 inventory as Windows 8 ramps up channel inventory.

One for all, or all for one?
Microsoft recently said that it has sold 60 million Windows 8 licenses. However, that total includes upgrades and sales to OEMs as the supply chain fills the channel. The software giant already deferred $1.2 billion in revenue in the September quarter related to upgrades and OEMs, in addition to the $540 million it deferred in the June quarter primarily for the Windows Upgrade Offer. That means a lot of the money for these licenses is already sitting on the balance sheet waiting to be recognized.

Still, license sales and unit shipments both represent sell-in as opposed to sell-through to end users. How many Windows 8 laptops/desktops/tablets/hybrids/convertibles/sliders are sitting on store shelves because the average buyer isn't confident about how use the darn thing?