Microsoft posted revenue from all desktop versions of Windows of $4 billion for the three months ended March 31, compared with Windows sales of $5.3 billion during the same period a year earlier.
Microsoft explained the drop by noting that the previous year's third-quarter sales were unusually high because they included revenue from Windows licenses sold during that period and revenue of $1.2 billion from Windows Vista presales that took place in the latter half of calendar year 2006, before Vista was released.
Microsoft did not recognize the presales, which the company offered through an XP-to-Vista upgrade program, until after Vista's debut in January 2007.
But that explanation only goes so far.
There are signs that Vista sales are not faring as well as Microsoft had hoped. Discounting the impact of the upgrade program on the prior year's sales, Microsoft's third-quarter 2008 Windows sales are virtually flat year over year during a time when, by Microsoft's own estimate, the overall PC market grew 8% to 10%.
What's behind Redmond's slump?
Industry reaction to Vista has been lukewarm at best, and Microsoft's Windows franchise is facing legitimate competition on the desktop for the first time since IBM pulled OS/2 from the market in the mid-'90s.
Apple, for instance, is gaining share in the consumer PC market on the strength of its well-received Mac OS X 10.5 Leopard operating system and the halo effect from its wildly successful iPod digital music player. Apple's Mac shipments jumped 51% in the quarter ended March 31.
Additionally, vendors like Ubuntu and Good OS have added user-friendly features to Linux that make the open source OS a viable choice for consumers for the first time. Wal-Mart, for instance, is now stocking a $199 PC that runs Good OS's Linux-based gOS operating system.
If Microsoft is to reinvigorate its desktop OS franchise, the company may first need to recognize that consumers and businesses now have more, legitimate non-Windows options than ever before.