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Microsoft still depends on Windows. Here’s what it is doing to revive the PC business.

VR headsets and a return to ARM-based computers are on tap for next year.


Despite Microsoft’s big move to the cloud, the Windows PC is still mighty important to its bottom line. Windows revenue directly accounts for nearly $15 billion per year in revenue, while Office sales and subscriptions account for another $23 billion.

Throw in Microsoft’s homegrown Surface and Microsoft still relies on the much-maligned PC for almost half of its $85 billion in annual revenue.

So it stands to reason that Microsoft is going to do everything it can to keep the PC from just fading off into the sunset.

This week, Microsoft is detailing two new efforts at its WinHec hardware conference in China. The first, with chipmaker Qualcomm, aims once again to have Windows run atop the kind of chips more commonly used in cellphones and tablets. The other, with longtime partner Intel, aims to get PC hardware into new areas, especially inside virtual reality headsets.

What’s clear is Microsoft needs to do something. The PC market declined 10 percent last year and is seen dropping another 7 percent this year, according to IDC.

Worldwide PC sales 2009-2016 Source: IDC

For the first push, Microsoft is returning to an idea it tried several years back: Porting Windows over to the ARM-based chips most commonly used in phones. The idea is to pave the way for machines that are thinner and have better battery life than those possible using traditional PC processors from Intel.

However, Microsoft’s first effort in this regard, the 2012 introduction of Windows RT, was a massive flop. Microsoft used Windows RT on its first Surface computer, resulting in tons of unsold inventory and a $900 million charge against earnings. Several other PC makers tried ARM-based systems but abandoned the operating system amid slim demand.

Rather than give up, Microsoft went back to address the biggest limitation of such computers — the fact that they would only run so-called “modern” applications built for Windows 8 and not the older “Win32” apps like Photoshop that were designed to run on all PCs.

Starting with an update next year, Windows 10 will be able to run on Qualcomm chips and use an emulation layer to support Photoshop and nearly all other classic Windows programs. Microsoft also plans to start directly selling wireless connectivity plans directly from its Windows Store.

Microsoft’s other effort, with longtime partner Intel, is a bid to make Windows 10 a major player in virtual reality headsets.

Windows PCs are already used as the brains powering other VR hardware, like HTC Vive and Oculus Rift. But Microsoft wants Windows itself running on VR and mixed reality headsets.

In addition to its homegrown HoloLens system, Microsoft is also working with a range of traditional PC makers to allow Windows 10 computers to connect to head-mounted VR displays.

Acer, ASUS, Dell, HP and Lenovo committed earlier this year to building such machines. Microsoft is announcing this week that leading Chinese VR firm 3Glasses will also make a Windows 10-based virtual reality setup. Lastly, Microsoft is releasing details on the type of PC that will be needed to work with any of these head-mounted displays.

The 3Glasses partnership is particularly important because it gives Microsoft access to both the Chinese market and to a VR player that already has a decent customer base.

The VR work is part of a broader collaboration Microsoft is undertaking with Intel, code-named Project Evo. The two are also working to improve face and voice recognition, including far-field microphones that would allow users to query Cortana on their PC in much the way one summons Amazon’s Alexa or the Google Assistant.

And all this is in addition to Microsoft’s own PC efforts under the Surface moniker. After that shaky start, the Surface line has steadily grown, generating revenue of more than $1 billion per quarter, on average, over the past year.

The company recently expanded its line to include Surface Studio, a powerful all-in-one that debuted the same week as Apple’s latest Mac Book Pro. The close timing led to inevitable side-by-side comparisons, with many concluding that Microsoft was doing more for creative professionals these days.

Asked whether he thought Microsoft was out-innovating Apple in computers, Myerson demurred.

“It doesn’t feel right for me to answer that,” he said.

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