Quarterly financial results are in from Microsoft, and they’re pretty ugly: The company’s revenue fell short of guidance by $900 million, and net income was down by 11 percent. In reaction to these numbers and general economic gloom, the company says it’s eliminating 1400 jobs today and a total of 5000 positions over the next 18 months (while hiring in some areas where the company sees growth or opportunity). At least that headcount cut is less severe than the worst rumors would have had it.

The sentence in the announcement with the most profound long-term implications for the company is this one: “Client revenue declined 8% as a result of PC market weakness and a continued shift to lower priced netbooks.” Translation: Windows Vista sold poorly during the quarter, and it did so in part because folks were buying low-cost computers that didn’t run it. Vista has been a poor fit for notebooks for two reasons–it’s too resource-hungry to run well on many of them, and it costs PC manufacturers too much. End result: Many netbooks run Windows XP or Linux.

The country’s economic mood at the moment is so miserable that it’s difficult to extrapolate what current news might mean for the future. (In fact, Microsoft announced today that it’s not giving guidance on its likely results for the rest of the year.) So it would be dangerous to assume that disappointing sales for Windows in one quarter means that the OS is entering an era of decline.But it’s fascinating to see Microsoft’s money machine break down. And if a meaningful percentage of PCs are going to cost so little from now on that Windows will be an unaffordable luxury, it means that the financial model that made Microsoft a monopolistic monolith could crumble in the years to come.

Sluggish Vista sales show just how important it is to Microsoft that Windows 7 be a reasonable operating system for netbooks. That definitely means that it must run respectably on PCs that sport low-end CPUs and skimpy amounts of RAM. But it may also force Microsoft to charge PC manufacturers less for the OS, in hopes of preventing them from opting out of Windows altogether. (I was in a Target recently that had two Asus Eee PCs for sale side-by-side: A $300 Linux model and a $350 Windows one. I’d love to know what the sales breakdown is…)

Anyone out there care to guess where Windows will be, say, three years from now? It ain’t going to disappear, and if Microsoft is fast enough on its feet it might be doing okay. But it’s possible, at least, that the planet will be noticeably less Windows-centric come 2012…

 
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