Earnings insights: Enterprise Windows 7-to-10 migrations won't wrap by January

Microsoft has acknowledged that the brisk sales it recently reported for Windows would continue past the support retirement date for Windows 7 as some customers will be late to get off the older OS.

In a July 18 earnings call with Wall Street analysts, Microsoft's chief financial officer said revenue from sales to computer manufacturers of Windows 10 Pro was up 18% over the June quarter of 2018.

"OEM Pro revenue grew 18 per cent, ahead of the commercial PC market, driven by healthy Windows 10 demand [and] strong momentum in advance of the Windows 7 end of support," said Amy Hood.

She also attributed four percentage points of that increase to computer builders boosting inventory in the fear that tariffs might be applied, raising their costs and forcing them to choose between higher prices and lower profits.

OEM stands for "original equipment manufacturer," the Lenovos, HPs and Dells of the world. Microsoft sells OEMs Windows 10 to pre-install on new systems.

The OEMs place Windows 10 Home on PCs aimed at consumers and Windows 10 Pro on machines designed for businesses. Microsoft dubs the latter "OEM Pro" and the former "OEM non-Pro."

Meanwhile, revenue from sales of OEM non-Pro Windows was down eight per cent from the same period the year prior, Hood said. Consumer PC sales have slumped for years as buyers abandoned the format for phones and tablets.

Business PC sales, including those due to companies replacing aging Windows 7 systems with new machines running Windows 10, have saved the business from complete ruin.

According to research firm IDC, the impending end-of-life for Windows 7 provided a "significant boost for the commercial segment" during the June quarter, especially in desktops. In Europe, the Middle East and Africa, desktop shipments experienced the first solid increase since the end of support for Windows XP in 2014.

"This shows that OS upgrades are always the peak of demand for stationary device renewals," Daniel Goncalves, an IDC senior research analyst, said in a statement.

Rival research company Gartner concurred. "Worldwide PC shipments growth was driven by demand from the Windows 10 refresh in the business market," said Mikako Kitagawa, senior principal analyst, also in a statement.

But while IDC said that the commercial Windows 7-to-Windows 10 migration is in its "last leg," Microsoft's Hood thought that leg could stretch as long as a year.

"What we've seen in prior releases is, [the impact of end of support] does extend a bit past the deadline, especially in our small and mid-sized business customers," Hood told investment analysts. "We will see some extension pass the line."

Windows 7 exits support on Jan. 14, 2020. After that, Microsoft will provide patches for the security vulnerabilities only to companies and organisations that pay extra for Windows 7 Extended Security Updates.

The post-retirement support will cost $25 (Windows 7 Enterprise) or $50 per (Windows 7 Professional) PC for the first year, with fees doubling each of the next two years.

A majority of companies has made the transition to Windows 10, according to a survey of IT decision makers conducted for Kollective, an Oregon-based company that sells content delivery solutions to corporations.

With just six months left before the Windows 7 deadline, 96 per cent of the businesses polled had started migrations to Windows 10, but a smaller number - 77 per cent - had completed the job. Of the large enterprises surveyed, 18 per cent, or more than one in six, had yet to wrap up.

"While the migration process has been streamlined by Microsoft for the move to Windows 10 [compared to 2014's XP-to-7 move], there is still a significant risk of larger enterprises missing the January 2020 deadline," Kollective wrote in a white paper outlining the survey results.

Other measurements argue that Windows 7 is even more entrenched. At the end of June, for example, U.S. analytics vendor Net Applications estimated that Windows 7 powered 40 per cent of the globe's Windows devices, a significantly larger share than Windows XP controlled half a year before its retirement.

Net Applications' data over the last 12 months signalled that Windows 7 would still be on 36 per cent of all Windows PCs when it loses support. However, Net Applications does not report business and consumer data separately, making it unclear how big a problem Windows 7 remains in the working world.

Gartner analyst Stephen Kleynhans said enterprise migrations had slowed of late, a not-unusual problem at this point. "Enterprises are moving along, but at a slower pace," Kleynhans said in an interview.

"We're in the wave of, I don't like the word 'laggards' because it's not that they're laggards because they're lazy, but they have unusual issues that are holding them back [from migrating]. Sometimes it's budget, sometimes it's technical."

Kleynhans estimated that between 15 per cent and 20 per cent of organisations will have what he called "significant numbers" of Windows 7 systems still in place at the mid-January retirement deadline.

"But Microsoft really took the pressure off, in a good way," Kleynhans continued, referring to Extended Security Updates, or ESU. The after-retirement support, he said, will allow enterprises to "focus on getting [the migration) done right."

Every organisation he had talked to that had or would pony up for ESU was planning on using it for just one year. Whether those enterprises will finish by January 2021, however, remains uncertain.

"My gut feel is that we're ahead of where we were with EOL [end-of-lifecycle] of Windows XP," Kleynhans concluded. "The actual process for most has been a lot smoother."