Microsoft says to expect 'PC market weakness' for the foreseeable future

Satya Nadella
(Image credit: Sean Gallup (Getty Images))

Microsoft really could've saved a lot of time during its latest financial earnings call by quoting Dickens: "It was the best of times, it was the worst of times." It is the age of PC gaming… but the PC is dying? 

Well, we've heard that one before, but it was nonetheless part of Microsoft's justification for a major 39% drop in Windows OEM revenue in its most recent quarter. OEM refer to the companies like Dell and HP that sell PCs with Windows installed; since none of them have migrated to Linux in the last few months, it's pretty safe to say Microsoft's revenue drop here correlates to a significant drop in PC sales, and thus a lot less cash coming in for all those preinstalled copies of Windows. That's what Microsoft is saying: the company blamed "continued PC market weakness and a strong prior year comparable" for the drop.

A recent report from analysis firm Canalys backs that up, saying PC shipments were down 29% in the last quarter of 2022, and 16% down from 2021, which was a boom year. To put that in perspective, though, PC shipments are still a bit up over where they were in 2019. Just a flesh wound, then.

Microsoft also blamed "execution challenges on new product launches" for an identical 39% drop in PC device sales like its Surface laptops. Considering Microsoft launched a whole slew of fresh Surface devices back in October, they clearly were not the holiday sales hits it was hoping for. And Microsoft expects this to all get worse in 2023: it's projecting Windows OEM revenue dropping by another 30% or more next quarter.

That's all "worst of times" stuff, but Microsoft had some "best of times" quotes for the PC in the tank, too. As reported by The Verge, during the earnings call CEO Satya Nadella highlighted that "usage intensity of Windows continues to be higher than pre-pandemic, with time spent per PC up nearly 10%." As The Verge points out, Phil Spencer's been talking up the PC recently, too—back in October, during a Wall Street Journal Tech event, he pointed to the PC as the key to Game Pass's continued expansion.

"We're seeing incredible growth on PC… 130-140% year-over-year," Spencer said. "That's really where we're focused. On console I've seen growth slow down on Game Pass, mainly because at some point you've reached everybody on console who wants to subscribe." 

And the cloud? Boy, is the cloud up big. Despite the disappointments of Windows, gaming, and device sales, $27.1 billion in revenue growth from Microsoft Cloud saved the quarter. No wonder Microsoft's so hot on ChatGPT: Nadella said that "The next major wave of computing is being born, as the Microsoft Cloud turns the world’s most advanced AI models into a new computing platform." Sure, the cloud is all the rage now, but that was the PC at some point—I look forward to "Is cloud computing dying?" headlines 20 years from now as we're all injecting Windows into our eyeballs or something.

Microsoft's gaming revenue was down 13% overall this quarter, but Microsoft noted that the decline was "partially offset by growth in Xbox Game Pass subscriptions." The company also expects that Game Pass is going to keep growing, but it won't be enough to overcome predicted "lower monetization per hour in third-party and first-party content." That says to me that Microsoft doesn't expect any huge games to land in the next three months, or any particularly lucrative DLC to roll out for existing games. So if you were hoping for Starfield to surprise drop by the end of March… time to make peace with disappointment.  

Wes Fenlon
Senior Editor

Wes has been covering games and hardware for more than 10 years, first at tech sites like The Wirecutter and Tested before joining the PC Gamer team in 2014. Wes plays a little bit of everything, but he'll always jump at the chance to cover emulation and Japanese games.

When he's not obsessively optimizing and re-optimizing a tangle of conveyor belts in Satisfactory (it's really becoming a problem), he's probably playing a 20-year-old Final Fantasy or some opaque ASCII roguelike. With a focus on writing and editing features, he seeks out personal stories and in-depth histories from the corners of PC gaming and its niche communities. 50% pizza by volume (deep dish, to be specific).