PC sales in July and August caught Manish Nigam, director of technology research in Asia for Credit Suisse, off guard, IDG is reporting. Credit Suisse had held the expectation that consumers would hold off purchasing new equipment until after Windows 7 ships.

Microsoft’s pre-sale marketing campaign, where it offered customers discounted upgrades for a limited time, appears to have been successful. But I question whether enthusiasm for Windows 7 PCs will be sustained after its launch, or if those early adopters were just being extremely cost-conscious.

In March, Gartner predicted a significant drop in PC sales for the year, noted the rise in popularity of low-cost netbooks, and said that PC users were extending the lifetimes of their equipment. Windows 7 will be a sales boon for Microsoft, but it might lack the potency of previous Windows releases.

Windows client licensing revenue fell $1 billion from last year, and Microsoft’s unearned revenue from multi-year license agreements has flatlined.

Unless Windows 7 proves wildly popular, the company’s prospects for restoring its Windows business to its past luster appear to be grim. I expect that the company will experience a cyclical earnings bump that will crest near where previous Windows releases have in the past, but growth will be less substantial.

That is because there are simply too many alternatives, with the Web acting as the great equalizer. I access Gmail just as quickly on a netbook running Linux as I would on a higher end laptop powered by Windows. And even though netbook hardware is wimpy by current standards, netbooks are as powerful as high-end machines were on the not-too-distant past

Not everyone is a developer or a gamer. I believe that the netbook meets the “good enough’ threshold for most people, and there is a decent assortment to choose from on the market.

Many of those people may have been compelled to purchase a netbook by financial reasons, but it is highly possible that many will be satisfied enough  to purchase another netbook in the future. It could mean a permanent change in consumer buying behavior.

Microsoft seems to understand that, because it is downplaying netbooks at every chance it can get, and is attempting to direct customers toward more expensive alternatives. But the industry has failed to create really compelling products that would “wow’ me into paying more–so far.

I am reminded of my late grandmother, who was a child of the Great Depression. She wouldn’t spend money needlessly, and would reuse what she had (including tinfoil). People are experiencing varying degrees of hardship during this recession, and it is not unreasonable to expect that their spending habits will be permanently altered.

Consequently, if Microsoft does not see its market share slide, it will see its revenues fall. It cannot charge as much for a copy of Windows on a $400 machine than it would have traditionally done on more expensive systems. The Windows cash cow is slowly beginning to dry up.

A four percent decline is expected in PC shipments worldwide year over year to 287.4 million units. However, the drop would only be temporary as shipments are expected to grow 4.7 percent in 2010.

Desktops appear to be the industry’s weakest spot. Year over year, shipments plummeted 23 percent in the first quarter. iSuppli expects a similar number for the second quarter when figures are compiled in the next few weeks.

Notebooks are helping to buoy shipments. Shipments there will climb nearly 12 percent to 155.9 million units this year. That would be enough to give portables a majority market share for the first time.

This isn’t all that surprising considering notebooks have been growing in popularity rather quickly for several years now. It seems that consumers are increasingly choosing mobility over power — as a general rule, desktops are more powerful PCs (for cheaper) than the notebook.

Either way, iSuppli’s findings shouldn’t surprise any of us. In a economy like this, we’re more worried about the necessities in life. While many of us are addicted to the Internet these days, a shiny new computer is not that necessary to surf the web with.

Average revenue per store is down 17 percent – falling from $7.1 million in the year ago quarter to $5.9 million. It could be argued that the only reason overall sales numbers were up slightly (1 percent) was the fact that 46 new locations have been added since then.

(Imagine the Wall Street carnage if Apple hadn’t opened a single store — eek.)

Thus, the company’s gotta do what its gotta do. That means layoffs — 1,600 full time employees will be cut across its 250+ stores. That would amount to about 10% off its current total workforce of around 15,600.

One thing is for sure however: the frantic pace at which Apple had been opening new retail locations appears to be a thing of the past. Sign of the times, ain’t?

More about Apple’s plans can be found in this SEC filing.

The company reported that its quarterly revenues were $13.65 billion, approximately 6 percent lower than they were this time last year. That missed Thomson Reuters’ sales forecast of $14.09 billion. Its net income was $2.98 billion, earning shareholders 33 cents per share.

In its filings, Microsoft noted that its earnings per share would have amounted to 39 cents if it were not for one time charges for employee severance costs and investment impairments. That figure would have met analysts’ estimates, according to reports.

I would be hesitant to say that Microsoft’s slumping performance is indicative of any type of sea change happening in the industry. Yes, by the company’s own omission, Windows client license revenues are down, but that does not mean that netbooks loaded with Linux are going to permanently displace Windows.

It is simply too soon to begin speaking about any long term trends taking hold, and there are too many variables. Despite its lowered earnings and occasional missteps, Microsoft remains in a competitive position in a number of product categories–without having ever accrued any long term debt. It is a strong company that is making operational and structural changes to adapt to the economic environment.

PC sales will spike this fall when Microsoft releases Windows 7 in October (unless it turns out to be January). I’m prepared to be underwhelmed due to fallout from the worldwide economic downturn, but when things begin to turn around, many people are going to want to buy new PCs loaded with Windows 7 and Office 14.

Aside from competing on price, the PS2 has a solid library of games and thriving aftermarket of accessories and used games. If I were a parent choosing between a PS2 and PS3, I’d opt for the lower-cost alternative, because it’s good enough.

When my grandfather was a child during the Great Depression, he received hand-me-down clothes to wear from his older brothers. When his shoes did not fit, he wadded them full of paper. Kids today can wait a few years, or mow some lawns to buy themselves a PS3.

I’d also make a bet that PS2 owners that have upgraded to PS3 still play some of their old games, because there are some great titles. Simple platforms such as Nintendo’s DS and the iPhone sell games, because the games are good. The latest and greatest isn’t always what people want to buy.

It’s great the Sony is capitalizing on its asset rather than abandoning a still lucrative platform. It’s good business, and it’s a great value for customers. That, and an excuse for me to tell curmudgeonly tales.

After the jump, a final set of fuzzy iPhone photos from the scene of the sale. I wonder how long it’ll take the landlord to fill the space, and what will replace Circuit City there–and in the 566 other storefronts that the chain’s failure leaves without a tenant?

As I wended my way towards the store, I noticed that the huge STORE CLOSING banner was gone. I don’t think this is a clue they’re having second thoughts. And it probably doesn’t mean they sold it to anyone, although that would be kind of cool. I suspect that the store is simply so near its end that they’d already started to remove the going-out-of-business signage. Either that, or it was torn asunder during the blustery weather we’ve been having here lately.

For the first time since my first visit to this store’s liquidation, it was packed with consumers–more than I’d seen in any Circuit City in a long time. And they were buying stuff, too. I was shocked to see a queue at the checkout.

Around seventy percent of the store was now cordoned off. I don’t know what the “SERVICE DEFECTIVE” on that tape means, but it’s sort of fitting: Circuit City died, in part, because its service was too often defective.

In normal times, you expect the signage attached to PCs in a store to brag about the features they contain. At a nearly-moribund Circuit City, it lists what’s not inside. Kind of like “no radio” signs tacked to car windows.

All the remaining laptops I saw were apparently floor models, missing fripperies like…oh, like all their keys, for instance. Despite signs saying that everything in the store was at least fifty percent off, computers were still marked down by only forty percent–Circuity City still hoped that someone would plunk down $539.98 for this one. (Tip: You can buy a pretty good brand-new laptop for less than that these days–one with a full set of keys, even.)

The store had planted folks brandishing signs promoting the sale around the neighborhood, and their placards stated that all TVs were 50 percent off. As far as I could tell, “all TV” consisted of one TV. As the description taped to its front explains, it has a red line down the middle of the screen. Bsut hey, it’s still a 1080p HD set with an impressive 10,000:1 contrast ratio.

The ample supply of blue iPod cases I’d seen last Mondaay were still there, still looking hopeful that someone would buy them. Sadly, it wouldn’t be these two ladies, who sauntered off after I snapped this photo.

Also still on hand: vast quantities of armbands for various Sandisk Sansa MP3 players. For thirty cents apiece. You gotta think they could knock them down to a penny apiece, and still have trouble getting rid of them.

The same Canon gadget that mystified me on my last visit was also still lurking about (upon further reflection, I think it’s a little photo printer). It’s really just not that much more tempting at $60 than it was at $90. When Circuit City closes for the last time tomorrow night, I wouldn’t be shocked if this were the last unsold item in the place.

Most of the CDs I’d seen on my last visit were gone, but I did run into Mary J. Blige. Repeatedly.

The place looked a little desolate even before I went inside: The “Store Closing” banner was twisting in the wind like a Circuit City creditor, a “For Lease” sign was up, and you still tell where the signage promoting the Verizon Store within (which is gone) had been haphazardly removed.

Inside, large sections of the store floor were cordoned off like a crime scene, with stern warnings forbidding customers to enter them. These were the only areas of the place that didn’t look a little like a dump.

So the big question with any liquidation sale is: Are there deals to be had? This one did have at least a few–$45 for a fresh copy of Microsoft Office Home and Student is a steal–it goes for appreciably more even at eBay.

Curiously, Circuit City hasn’t seen fit to do anything insaaaaaaaaaane with PCs yet. Despite signs around the store claiming that everything was at least 30 percent off, desktops and laptops have still only been marked down by 20 percent. Most desktops seemed to be gone, but it had stacks and stacks of one HP model.

I didn’t see any factory-sealed notebooks remaining–Circuit City is still trying to sell open-box ones (floor models?) for only 20 percent off. As one shopper I overheard commented, “My socks remain firmly on.”

TVs were 40 percent off, including a 42-inch LG model that was in plentiful supply. I tried to find the LG elsewhere to see if Circuit City’s $779.49 price was a big whoop, but couldn’t find it–looks like it may be an old model. I did find TigerDirect selling an LG model that looks similar, but with better specs, for $20 more. And LG’s own site says that Circuit City’s set lists for $1049, not the $1299.99 that Circuit claims.

This left me feeling melancholy: The TVs that were still plugged in were running a video in a continuous loop bragging about the fabulous after-the-sale service and peace of mind that buying at Circuit City brings.

Weird: In same cases the store had dozens and dozens of one item on hand, as if someone in the purchasing department had been engaging in irrational exuberance. Such as one particular blue iPod case.

Circuit City also remains a great place to buy DVDs, as long as they’re either The Dark Knight or Hancock.

What was the single steepest discount I saw in the place?”Mobile Accessories” were eighty percent off. Most of them seemed to actually be parts that the store’s installation department would have used, such as car model-specific faceplates for installing aftermarket stereos.

“The PC industry is facing extraordinary conditions as the global economy continues to weaken, users stretch PC lifetimes and PC suppliers grow increasingly cautious,” said George Shiffler, research director at Gartner. Sales in both emerging and mature markets will both decline at steep rates,10.4 percent and 13 percent respectively, according to the report.

The Gartner report is not so much a “Debbie Downer: as it is a reflection of today’s economic reality. Consumers and businesses are just spending less. And it’s not surprising to see them stretch out the useful life of the computers they already own.

Worldwide mobile PC shipments are expected to reach 155.6 million units, a 9 percent increase from 2008. Desktop PC shipments are forecast to total 101.4 million units, a 31.9 percent decline from 2008. Mobile PC growth will be substantially boosted by continued growth in mini-notebook shipments; excluding mini-notebooks, other mobile PC shipments will grow just 2.7 percent in 2009.

Desktop PC sales are forecast for a marked 31.9% decline; whereas, mobile PC sales are expected to increase nearly 10% from 2008. The report credits the burgeoning popularity of netbooks–low cost mobile PCs–for the growth. Netbooks are cushioning sales, but remain too few to offset the collapse of the desktop PC market, the report noted.

Regardless, PC makers have learned their lessons from 2001, when the market contracted just 3.2%, Gartner says. “Razor thin margins and the lessons learned in 2001 have schooled PC vendors and channels in the necessity to invest in their supply chains. These investments have given them much better visibility of demand, even though products are largely being built in Asia by third parties and therefore have long lead times.”

The PC market is far from collapsing, and the availability of Windows 7 later this year (unless it’s January) will likely boost sales. Back-to-school and holiday sales likely won’t be as robust as they would during normal economic times, but there are still a lot of PCs that will be sold this year, and there will not be a dust bowl in Silicon Valley.

Nokia is reducing production at its plant in Salo, Finland, and has begun to phase in furlough days that will affect 20 to 30% of the plant’s 2,500 employees, on a rotational basis. The company is also shuttering its facility in Jyvaskyla, Finland, costing 320 people their jobs.

Nokia told investors in January that it expects cell phone demand to fall 10 percent in 2009. However, it managed to increase its share of the worldwide mobile market in 2008 even while demand was weakened by lowered consumer confidence, according to a September 5 report by Nordic Business Report. It experienced a 69 percent drop in its 2008 fourth-quarter net profit.

In many markets, Nokia’s sales grew–it’s the U.S. market that has remained its albatross. RCR Wireless News reported in July that Nokia claimed 40% of the market in 2008, and its sales were particularly strong in the Asia-Pacific region, Latin America, and Middle East.

The company is relying upon high-end smartphones to help them cope with economic crisis, the Wall Street Journal reported in a December interview with Jonas Geust, vice president of Nokia Nseries unit. The smart phone market is growing, but Nokia is not a benefiting much. It is losing out to fierce competition from Apple and Research In Motion.

It seems counterintuitive for Nokia to cut its expenses when its most advanced devices are failing to sell. The 5800 XpressMusic, Nokia’s initial answer to the iPhone, lacked multitouch capabilities. That should have been an indication that it needed to invest more, not less. I don’t see how a move away from innovation is good for customers.