R. I. P. Windows

Farhad ManjooWin­dows is dead. Let’s all salute it—pour out a glass for it, burn a CD for it, reboot your PC one last time. Win­dows had a good run. For a time, it pow­ered the world. But that era is over. It was killed by the unlike­li­est of col­lab­o­ra­tions—Microsoft’s ancient ene­mies work­ing over decades, in con­cert: Steve Jobs, Linus Tor­valds, and most of all, two guys named Larry and Sergey.

Microsoft swallows Nokia's handset business for $7.2 billion

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By Ritsuko Ando and Bill Rigby

HELSINKI/SEATTLE (Reuters) - Two years after hitching its fate to Microsoft's Windows Phone software, Nokia collapsed into the arms of the U.S. software giant on Tuesday, agreeing to sell its main handset business for 5.44 billion euros ($7.2 billion).

Nokia, once the world's dominant handset maker, has failed to close a yawning lead opened up by Apple and Samsung in the highly competitive market for smartphones and will now concentrate on its networking equipment unit, navigation business and technology patents.

Nokia's Canadian boss Stephen Elop, who ran Microsoft's business software division before jumping to Nokia in 2010, will return to the U.S. firm as head of its mobile devices business - a Trojan horse, according to disgruntled Finnish media.

He is being discussed as a possible replacement for Microsoft's retiring CEO Steve Ballmer, who is trying to remake the U.S. firm into a gadget and services company like Apple before he departs, though it has fallen short so far in its attempts to compete in mobile devices.

"It's very clear to me that rationally this is the right step going forward," Elop told reporters, though he added he also felt "a great deal of sadness" over the outcome.

"I feel sadness because inevitably we are changing Nokia and what it stands for," he said.

In three years under Elop, Nokia saw its market share collapse and its share price shrivel.

In 2011, after writing a memo that said Nokia lacked the in-house technology and needed to jump off a "burning platform", Elop made the controversial decision to use Microsoft's Windows Phone for smartphones, rather than Nokia's own software or Google's ubiquitous Android operating system.

Nokia, which had 40 percent of the handset market in 2007, now has just 15 percent, and only 3 percent in smartphones.

Shares in Nokia surged 39 percent to 4.10 euros on Tuesday. While up from their decade-low of 1.33 euros hit last year, they are still only a fraction of their 2000 peak of 65 euros.

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The Microsoft logo is seen at their offices in Bucharest March 20, 2013. REUTERS/Bogdan Cristel

After today's gains the whole company is worth about 15 billion euros, a far cry from its glory days when it peaked at over 200 billion euros.

Tuesday's deal includes an agreement to license Nokia's patent portfolio for 10 years. Without it, Nokia's devices and services business would have been worth about 3.7 billion euros, the companies said.

Microsoft shares in Frankfurt were down about 5 percent.

SOLD FOR "PEANUTS"

While some investors have credited Elop for bringing urgency to Nokia, which has stepped up its pace of product development in recent months and is due to announce a "phablet"-type large-screen handset this month, his legacy will be a bitter one for Finland. The company, which began life as a paper mill and has sold an eclectic range from television sets to rubber boots in its 148-year history, was a national champion in its heyday, accounting for 16 percent of all exports.

Hired by former chairman Jorma Ollila, Elop was the first foreigner to lead it.

For many Finns, the fact that a former Microsoft executive had come to Nokia, bet the firm's future on an alliance with Microsoft, laid off about 40,000 worldwide and then delivered it into Microsoft's hands, was a galling snub to national pride.

"Jorma Ollila brought a Trojan horse to Nokia," a column in widely read tabloid Ilta-Sanoma said.

"As a Finnish person, I cannot like this deal. It ends one chapter in this Nokia story," said Juha Varis, Danske Capital's senior portfolio manager, whose fund owns Nokia shares. "On the other hand, it was maybe the last opportunity to sell it."

Varis was one of many investors critical of Elop's decision to bet Nokia's future in smartphones on Microsoft's Windows Phone software, which was praised by tech reviewers but hasn't found the momentum to challenge the market leaders.

"So this is the outcome: the whole business for 5 billion euros. That's peanuts compared to its history," he said.

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Nokia chief executive Stephen Elop (L) welcomes Microsoft chief executive Steve Ballmer with a hands …

Alexander Stubb, Finland's Minister for European Affairs and Foreign Trade, said on his Twitter account: "For a lot of us Finns, including myself, Nokia phones are part of what we grew up with. Many first reactions to the deal will be emotional."

Nokia's new interim CEO Risto Siilasmaa painted a picture of just how grudgingly the call to sell had been arrived at, describing how the board had met almost 50 times after the approach by Microsoft around February.

Ballmer, at a news conference in the Finnish capital, sought to assuage fears the deal would hit jobs in the Nordic country and said Microsoft would build on the recent growth of Nokia's flagship Lumia smartphones.

Nokia said it expected around 32,000 people of its roughly 90,000 worldwide staff would transfer to Microsoft, including about 4,700 who will transfer in Finland.

PIVOTAL FOR MICROSOFT

It is also a pivotal moment for Microsoft, which still has huge revenues from its Windows computer operating system, Office suite of business software and the X-Box game console, but has failed so far to set up a profitable mobile device business.

Microsoft's own mobile gadget, the Surface tablet, has sold tepidly since it was launched last year.

"It's a bold step into the future — a win-win for employees, shareholders and consumers of both companies," Ballmer said. "Bringing these great teams together will accelerate Microsoft's share and profits in phones and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services."

The move leaves the Finnish company with Nokia Solutions and Networks, which competes with the likes of Ericsson and Huawei in telecoms equipment, as well as a navigation business and a broad portfolio of patents.

The Nokia deal thrusts Microsoft deeper into the hotly contested mobile phone market, despite some investors urging it to stick to its core strengths of business software and services.

Elop will return to Microsoft as its board ponders a successor to Ballmer, who will depart in the next 12 months.

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A woman takes pictures with Nokia's new smartphone, the Lumia 1020 with a 41-megapixel camera, after …

Activist fund manager ValueAct Capital Management, which has been offered a board seat, is among those concerned with Ballmer's leadership and his attempts to plough headlong into the lower-margin, highly competitive mobile devices arena.

Others applauded Ballmer's aggressive gambit.

"Microsoft cannot walk away from smartphones, and the hope that other vendors will support Windows Phone is fading fast. So buying Nokia comes at the right time," said Carolina Milanesi, an analyst at Gartner.

"In today's market it is clear that a vertical integration is the way forward for a company to succeed. How else could Microsoft achieve this?"

As part of Microsoft, Elop will head an expanded Devices unit. Julie Larson-Green, who in July was promoted to head a new Devices and Studios business in Ballmer's reorganization, will report to Elop when the deal is closed.

FIRE SALE

Analyst Tero Kuittinen at consultancy Alekstra said the sale price of Nokia's phone business, about a quarter of its sales last year, represented a "fire sale level", though others were less clear about what a shrunken Nokia was worth.

The price agreed for the devices and services business gives it an enterprise value of about 0.33 times sales for a loss-making business, about half what Google paid for Motorola's handset business in 2012.

"What should be paid for a declining business, where market share has been constantly lost and profitability has been poor?" said Hannu Rauhala, analyst at Pohjola Bank. "It is difficult to say if it's cheap or expensive."

Nokia is still the world's No. 2 mobile phone maker behind Samsung, but it is not in the top five in the more lucrative and faster-growing smartphone market.

Sales of Nokia's Lumia series have helped the market share of Windows Phones in the global smartphone market climb to 3.3 percent, according to consultancy Gartner, overtaking ailing BlackBerry Ltd for the first time this year. Still, Google Inc's Android and Apple's iOS system make up 90 percent of the market.

Nokia said in a statement it expected that, apart from Elop, senior executives Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber would transfer to Microsoft when the deal is concluded, probably in the first quarter of 2014.

($1 = 0.7582 euros)

Steve Ballmer Retired from Microsoft CEO

SEATTLE (Reuters) - The next CEO of Microsoft Corp has one big decision to make: press on with retiring chief executive Steve Ballmer's ambitious plan to transform the software giant into a broad-based devices and services company, or jettison that idea and rally resources around its proven strength in business software.

Ballmer's grand design - unveiled just six weeks before Friday's surprise announcement that he would retire within a year - calls for 'One Microsoft' to pull together and forge a future based on hardware and cloud-based services.

But poor sales of the new Surface tablet, on top of Microsoft's years-long failure to make money out of online search or smartphones, have cast doubt on that approach.

For years, investors have called on Microsoft to redirect cash spent on money-losing or peripheral projects to shareholders, while limiting its focus to the vastly profitable Windows, Office and server franchises.

Activist investor ValueAct Capital Management LP, whose recent lobbying of the company may have played a role in Ballmer's decision to retire earlier than he planned, is thought to favor such an approach.

In the last two years alone, Microsoft has lost almost $3 billion on its Bing search engine and other Internet projects, not counting a $6 billion write-off for its failed purchase of online advertising agency aQuantive. It took a $900 million charge for its poor-selling Surface tablet last quarter.

For now at least, Microsoft seems intent on pursuing Ballmer's vision. John Thompson, Microsoft's lead independent director who is also heading the committee to appoint a new CEO, said on Friday the board is "committed" to Ballmer's transformation plan.

The eventual choice of that committee - which has given itself a year to do its work - should provide a clue to how committed the board really is, and how open to outside advice.

"Taking an internal candidate like Satya Nadella - the guy nurturing servers - or some of the other people on the Windows team, that makes sense to keep a steady hand through this reorganization and strategic shift," said Norman Young, an analyst at Morningstar.

"But a strong case could be made that the company needs a breath of fresh air, someone who can execute on the strategy but also bring an outsider perspective," he added.

That could mean selling the Xbox and abandoning Bing, or cutting short efforts to make tablets or other computers.

SHAREHOLDERS CLAMOUR FOR MONEY, BALLMER'S HEAD

Throughout the last decade, as Microsoft's share price has remained flat, shareholders have called for bigger dividends and share buybacks to beef up their returns.

Microsoft obliged with a one-time $3 a share special dividend in 2004 and has trebled its quarterly dividend to 23 cents since then.

But shareholders still want a bigger slice of Microsoft's $77 billion cash hoard, $70 billion of which is held overseas.

Rick Sherlund, an analyst at Nomura, believes that if the retirement of Ballmer means the company is listening to ValueAct and its supporters, then action on the dividend and share buyback could perhaps happen as early as September 19, when Microsoft hosts its annual get-together with analysts and is expected announce its latest dividend.

"The momentum of shareholder activism is well underway and likely to benefit shareholders even though the process of how this unfolds is not certain," said Sherlund.

The lackluster performance of Microsoft's stock has long been the stick that shareholders beat Ballmer with, and it has looked all the worse compared with the staggering gains made by Apple Inc under Steve Jobs.

Yet Ballmer - who owns just under 4 percent of the company - never showed any doubts about his intention to stay in the job. His old friend and ally Bill Gates, who still owns 4.8 percent of the company, never wavered in his public support.

The first public signs of dissent on Microsoft's board came in 2010, when Ballmer's bonus was trimmed explicitly for the flop of the infamous Kin 'social' phone and a failure to match Apple's iPad, according to regulatory filings.

It was around that time, though not necessarily connected, that the board started considering how it would manage a succession, according to a source familiar with the matter. Ballmer and the board began talking to both internal and external candidates.

About 18 months to two years ago, Ballmer started thinking seriously about a succession plan, the internal source said.

The time since was not marked with glory for Ballmer, with a tepid launch of Windows 8, the disappointment of the Surface tablet, and a $731 million fine by European regulators for forgetting to offer a choice of browsers to Windows users.

Two to three months ago, Ballmer started thinking seriously about his retirement and concluded it was the "right time to start the process," the source said. That was shortly after ValueAct took a $2 billion stake in Microsoft.

July's gloomy earnings, which offered no immediate hope of quick improvement, may have sealed the decision. Ballmer said Friday he made the choice in the few days prior, and informed the board on Wednesday. Whether the board urged Ballmer to leave is not known.

The impending exit of Ballmer leaves a difficult and perhaps impossible choice to his successor - pushing a large and insular behemoth through a highly risky transformation to the mobile world, or clinging to an island of profitable but PC-centric businesses.

"I'm not sure there is someone who can do Steve's (Ballmer's) job 'better'. It's an incredibly difficult job, perhaps intractable," said Brad Silverberg, a former senior Windows executive and co-founder of Seattle venture capital firm Ignition Partners. "Perhaps the way the job is defined needs to change, and this is the harbinger of bigger changes to come."

Free Bing for school

08/21/2013 Microsoft offers ad-free Bing for the classroom to battle Google
The Microsoft logo is seen at their offices in BucharestBy Gerry Shih SAN FRANCISCO (Reuters) - The long-running rivalry between Microsoft Corp and Google Inc is turning into a schoolyard brawl. Microsoft on Wednesday opened a new front against the world's No 1 search provider by piloting an ad-free offering for educational users of Bing, its search engine that for years has trailed Google. Under the free program called "Bing for Schools," students in participating school districts will no longer see ads or adult content when they do Internet searches. ...

Microsoft and Oracle work together in Cloud Computing

SAN FRANCISCO/SEATTLE (Reuters) - Microsoft Corp said on Monday it would support Oracle Corp software on its cloud-based platforms, a tie-up aimed at improving the rivals' chances against nimbler Web-based computing companies chipping away at their traditional businesses.

The two industry leaders have competed for decades to sell technology to the world's largest companies. But they face growing pressure from new rivals selling often-cheaper services based in remote data centers, and they are rushing to adapt.

The two companies have long collaborated out of the public eye to meet customers' needs, Microsoft Chief Executive Steve Ballmer said on a conference call. "In the world of cloud computing, I think behind-the-scenes collaboration is not enough."

The tie-up does not resolve major competitive challenges the two tech pioneers face in the cloud market, but their cooperation was seen as a symbolically important step.

"Is it a game changer today? Not at all. It shows both companies are serious about their cloud endeavors. The fact that historical competitors are now friends speaks to how big the cloud opportunity is. And it opens up potential avenues of growth down the road," said Daniel Ives, an analyst at investment bank FBR.

Under the agreement, customers will be able to run Oracle software on Microsoft's Server Hyper-V and on Windows Azure platforms, the companies said.

Microsoft will offer Oracle's Java, Database and WebLogic Server to Windows Azure customers, while Oracle will also make Linux available to Windows Azure customers, the companies said in a news release.

Ironically, the pact means Microsoft is effectively promoting Linux and Java-based software, longtime rivals to its own Windows platform. But the software maker stands to benefit from getting any customer to pay for its datacenter services, regardless of the underlying software being used.

No. 3 software maker Oracle last week missed expectations for software sales for the fourth quarter, sending its shares plunging. Investors worried that the company may have trouble competing with software providers like Salesforce.com and Workday, as well as Amazon.com, which has also become a major player in cloud computing infrastructure.

Top software maker Microsoft's large-scale cloud computing initiative, called Azure, has failed to catch up with Amazon's cloud offering, called AWS (Amazon Web Services), which blazed the trail in elastic online computing services in the cloud.

The rivalry between Oracle and Microsoft dates back several decades and has been marked by a personal rivalry between the companies' best-known cofounders: Larry Ellison and Bill Gates.

In 1995, as the Windows franchise was taking off, Ellison began a high-profile but unsuccessful effort to promote a less expensive competitor to the personal computer known as the Network Computer. Gates began aggressively attacking Oracle's core database business in the late 1990s, infuriating Ellison as Microsoft's less-expensive SQL Server gained market share.

In recent years, both have come under attack from a wave of younger companies, like Workday and Salesforce, which charge a single subscription fee for software and support, at far lower margins than for Oracle's traditional products.

Ellison told analysts on last Thursday's quarterly conference call that Oracle had forged alliances with Microsoft and Salesforce.com, which uses Oracle's technology, and said he would announce details this week.

Over the past five years, shares of Amazon.com, which rents remote computing and storage to other companies, have surged 237 percent. Salesforce.com, founded by former Oracle executive Marc Benioff, has risen 105 percent.

During the same half decade, Oracle's stock has risen 38 percent and Microsoft's shares are up 21 percent.

EU regulators set to fine Microsoft for breaking browser pledge

EU regulators set to fine Microsoft for breaking browser pledge

BRUSSELS (Reuters) - European Union anti-trust regulators are set to hit Microsoft with a hefty fine on Wednesday for breaking a promise to offer consumers using its Windows system a choice of rival Internet browsers, people familiar with the case said.

EU anti-trust chief Joaquin Almunia is expected to use the fine - which could run into hundreds of millions of euros - to set an example after the software giant became the first company to break a promise made to end an anti-trust probe.

Almunia will announce his decision at 6:30 a.m. ET, the sources said. Reuters reported last week that EU regulators would fine Microsoft before the end of March.

EU rules mean the company could be penalized $7.4 billion or 10 percent of its fiscal 2012 revenues although regulators are not expected to levy such a high fine.

The fines relate to an anti-trust battle in Europe more than a decade ago. In order to avoid a penalty then, Microsoft promised to offer European consumers a choice of rival browsers.

EU anti-trust regulators said this did not happen for a period during February 2011 and July 2012, a lapse Microsoft blamed on a technical error. It has said it since tightened internal procedures to avoid a repeat.

The European Commission has already fined Microsoft 1.6 billion euros ($2.1 billion) to date for not providing data at fair prices to rivals and for tying its media player to its operating system.

The latest lapse did not escape the notice of Microsoft's board, which cut the bonus of chief executive Steve Ballmer last year, partly because of the Windows division's failure to provide a browser choice screen as required by the European Commission, according to an annual proxy filing.

Both the European Commission and Microsoft declined to comment.

Microsoft's share of the European browser market has roughly halved since 2008 to 24 percent in January, below the 35 percent held by Google's Chrome and Mozilla's 29 percent share, according to Web traffic analysis company StatCounter.

Microsoft Internet Explore 10

SEATTLE (Reuters) - Microsoft Corp released Internet Explorer 10 to millions of new users on Tuesday, hoping the latest version of its market-leading browser will win back customers who have migrated to Google Inc's Chrome and help it establish a toe-hold in the fast-growing mobile browser market.

The world's largest software maker, whose Internet Explorer browser elbowed out Netscape Navigator in the early days of the web, said IE 10 is 20 percent faster at downloading sites than its predecessor IE 9 and allows for touch-screen commands.

The browser has been available since late October for users of Windows 8, Microsoft's new touch-friendly operating system, but now becomes available for the 700 million or so users of Windows 7.

Microsoft is hoping PC and laptop users will like the new browser enough to consider buying Windows 8 tablets rather than Apple Inc's iPad, which does not run Internet Explorer.

Various versions of Microsoft's venerable Internet Explorer franchise still dominate desktop browsing, with 55 percent of the PC browser market all together. But it has in recent years lost share to Mozilla's Firefox and Google's Chrome, which now account for 20 percent and 17 percent respectively, according to tech research firm NetMarketShare.

IE 10 running on Windows 8 has got generally good reviews, and has been hailed as the best version of Internet Explorer yet, but it has not been considered decisively superior to Chrome or Firefox.

In the smaller but faster-growing mobile browser market, Apple's Safari is the runaway leader with 61 percent, owing to the popularity of its iPhones and iPads while Google's Android browser has 21 percent.

Tablets running Windows 8, including Microsoft's own Surface devices, have not sold strongly since they were launched last October, restricting IE 10's popularity so far. Only 2.3 percent of computer users are running Windows 8, according to NetMarketShare.

Bill Gates said he was not satisfied with the company's pace of innovation over the last few years, and that it had mishandled its early mobile strategy

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  Reuters/Reuters - Microsoft founder and philanthropist Bill Gates listens alongside Mexican businessman Carlos Slim (not pictured) during a news conference after taking part in the inauguration of a new research …more 

(Reuters) - Microsoft Corp Chairman Bill Gates said he was not satisfied with the company's pace of innovation over the last few years, and that it had mishandled its early mobile strategy.

"We didn't miss cellphones, but the way that we went about it didn't allow us to get the leadership. It's clearly a mistake," Gates, Microsoft's former CEO, said in a rare interview with CBS.

Gates hedged questions on whether he was happy with Chief Executive Steve Ballmer's performance. He said Ballmer had achieved a lot but that both he and Ballmer were not satisfied.

"(Ballmer) and I are two of the most self-critical people I know," Gates said.

"There are a lot of amazing things that Steve's leadership achieved — Windows 8, the Surface computer, Bing, Xbox. Is it enough? No. He and I are not satisfied that in terms of breakthrough things we are doing everything possible."

Ballmer took over as Microsoft's CEO in February 2000. The company's shares have dropped 45 percent since then.

A former senior Microsoft executive, Joachim Kempin, said in a book he wrote about his time at the company that Ballmer was not the right leader for the world's largest software company but held his grip on it by systematically forcing out any rising manager who challenged his authority.

His criticism echoes that of investor David Einhorn of Greenlight Capital, who called for Ballmer to step down in 2011.

Microsoft has faced criticism for its latest Windows 8 versions for different devices, while its Bing search engine has won only a small market share.

Yahoo Inc Chief Executive Marissa Mayer said the company's search partnership with Microsoft Corp was not delivering the market share gains or the revenue boost that it should.

Yahoo Inc Chief Executive Marissa Mayer said the company's search partnership with Microsoft Corp was not delivering the market share gains or the revenue boost that it should.

"One of the points of the alliance is that we collectively want to grow share rather than just trading share with each other," Mayer said at the Goldman Sachs Technology and Internet Conference in San Francisco on Tuesday.

In her first appearance at an investor conference since taking the reins of the struggling Web portal in July, Mayer said she planned to prune a sprawling lineup of mobile apps and she reiterated her focus on enticing consumers to spend more time on Yahoo's online properties, in order to display more money-making ads.

"I'm not confused. Our biggest business problem right now is impressions. Basically can we grow impressions, can we get growth happening here," Mayer said.

Yahoo shares finished Tuesday's regular trading session up 31 cents at $21.21.

Mayer, 37, took over after a tumultuous period at Yahoo in which former CEO Scott Thompson resigned after less than 6 months on the job over a controversy about his academic credentials and in which Yahoo co-founder Jerry Yang resigned from the board and cut his ties with the company.

Yahoo's revenue in 2012 was flat year-over-year, at roughly $5 billion, and down from roughly $6.3 billion in 2010.

"We need to see monetization working better because we know that it can and we've seen other competitors in the space illustrate how well it can work," Mayer said of the search deal with Microsoft.

Yahoo and Microsoft entered into a 10-year search partnership in 2010, hoping their combined efforts could mount a more competitive challenge to Google Inc, the world's No.1 search engine. But the partnership has not lived up to expectations.

Google remains the dominant search engine, with a 66.7 percent share of the U.S. market in December, almost unchanged from its 66.6 percent share two years earlier, according to online analytics firm comScore.

Microsoft had 16.3 percent share and Yahoo had 12.2 percent share in December, a reversal of two years earlier when Yahoo's U.S. search share was 16 percent and Microsoft had 12 percent share.

Yahoo's stock has risen more than 30 percent since Mayer took the helm in July, reaching its highest levels since 2008.

Analysts say that part of the stock's rise has been driven by significant stock buybacks, using proceeds from a $7.6 billion deal to sell half of its 40 percent stake in Chinese Internet company Alibaba Group.

Mayer said that she viewed the company's relationship with Yahoo Japan, which is partly owned by Softbank, as "strategic" to the company. Under previous CEOs, Yahoo had engaged in unsuccessful discussions to "monetize" its roughly 35 percent stake in Yahoo Japan.

Microsoft Office sale lowered

Microsoft Corp's quarterly profit edged lower as Office software sales slowed ahead of a new launch, offsetting a solid but unspectacular start for its Windows 8 operating system and sending the company's shares down 1.4 percent.

The results mark a stark change from the 1990s, when Microsoft was the unchallenged king of computing and the release of a new Windows operating system would supercharge sales, generate excitement and generally boost its stock.

None of that appears to be true now, as Microsoft has been overtaken by Apple Inc and Google Inc in the rush toward mobile computing, while sales of traditional desktop computers are in decline.

"There's still no sign that Windows 8 is a gangbuster," said Andrew Bartels, an analyst at Forrester Research. "Compared to prior periods, where you saw a big increase when a new one came out, you're not seeing that."

Profit at the world's largest software company slid to $6.4 billion, or 76 cents per share, in the fiscal second quarter, from $6.6 billion, or 78 cents per share, in the year-ago quarter.

Wall Street had expected 75 cents per share, on average, according to Thomson Reuters I/B/E/S.

Overall sales rose 3 percent to $21.5 billion, Microsoft said on Thursday, in line with analysts' estimates.

The biggest factor weighing on Microsoft was a 10 percent decline in sales at its Office unit to $5.7 billion, which took into account the loss of deferred revenue relating to discounted upgrades to the new version of the software, expected shortly.

"It's a pause before a product launch, which is typical," said Josh Olson, an analyst at Edward Jones.

WINDOWS SHRUG

Windows sales jumped 24 percent to $5.9 billion, slightly ahead of analysts' average expectations, which had been gradually lowered over the last few months. That also included some deferred revenue relating to discounted upgrades.

Microsoft said it has sold more than 60 million Windows 8 licenses since its late-October launch, an unexceptional start for a product which has not gripped the public's imagination in the way of Apple's iPad.

The company already announced 60 million Windows 8 sales two weeks ago, broadly in line with Windows 7 sales three years before.

"Windows 8 continues to have an uphill battle in convincing investors this is going to be the key to the growth story for Microsoft," said Daniel Ives, an analyst at FBR Capital Markets. "It continues to be a major prove-me product cycle."

Microsoft did not detail sales of its new Surface tablet - a direct competitor to the iPad - although chief financial officer Peter Klein said the company was expanding production and distribution.

Windows executives suggest that Windows will win more people over when new touch-screen devices start hitting the shelves in coming months.

"Demand is stronger than supply across a number of key device types, whether Windows tablets, convertibles, or all-in-ones," Tami Reller, chief financial officer of Microsoft's Windows unit, told Reuters earlier this month. "Most of the opportunity is still ahead of us."

Analysts seem prepared to give Microsoft more time to prove its point.

"It's been disruptive but the PC market is far from dead," said Colin Gillis, an analyst at BGC Financial. "Even if they have minimal success with Surface, they don't need much to move the needle."

Microsoft shares have fallen 2 percent since Windows 8 was launched on October 26, compared to a 5 percent gain in the tech-heavy Nasdaq composite index. They fell to $27.06 in after-hours trading, after closing at $27.23 on Nasdaq.

Microsoft buyiing Dell

Microsoft Corp is in discussions to invest between $1 billion and $3 billion of mezzanine financing in a buyout of Dell Inc, CNBC cited unidentified sources as saying on Tuesday.

Private equity outfit Silver Lake Partners is trying to finalize a bidding group to take the world's No. 3 PC maker private, and has opened discussions with potential equity partners, sources familiar with the matter have said.

Dell also has formed a special committee to take a close look at any potential deal on the table, multiple sources with knowledge of the matter told Reuters. If successful, it would be one of the largest corporate buyouts since before the global financial crisis.

Microsoft, which accelerated its foray into computer hardware in 2012 with the launch of the Surface tablet, will provide the capital in the form of mezzanine financing according to CNBC, which is a hybrid of debt and equity.

Microsoft and Dell both declined to comment on the CNBC report. Shares in Dell gained climbed 2 percent to $13.08 in late morning trade.

Former exec said Steve Ballmer maybe a good coo, but not a suitable ceo

Microsoft Corp Chief Executive Steve Ballmer is not the right leader for the world's largest software company but holds his grip on it by systematically forcing out any rising manager who challenges his authority, claims a former senior executive who has written a book about his time at the company.

"For Microsoft to really get back in the game seriously, you need a big change in management," said Joachim Kempin, who worked at Microsoft between 1983 and 2002, overseeing the sales of Windows software to computer makers for part of that time. "As much as I respect Steve Ballmer, he may be part of that in the end."

As a senior vice president in charge of a crucial part of the company's business with direct access to co-founder Bill Gates, Kempin is the most senior former Microsoft executive to write a book critical of the company, which is famous for the loyalty of its ex-employees.

His criticism echoes that of investor David Einhorn of Greenlight Capital, who called for Ballmer to step down in 2011.

Kempin left Microsoft under a cloud in 2002 as some of the aggressive contracts he crafted with PC makers were seen as fodder for the U.S. government's antitrust prosecution of the company, which started in 1998 and was largely resolved by 2002.

His book, titled 'Resolve and Fortitude: Microsoft's "secret power broker" breaks his silence', is scheduled to be published on Tuesday. He talked with Reuters by phone on Monday.

DEFEND THE THRONE

Kempin charges Ballmer with purposefully ousting any executives with potential to wrest him from the CEO seat, which he has occupied since 2000.

He said he saw the process first with Richard Belluzzo, a former Hewlett-Packard executive credited with launching the Xbox game console who rose to chief operating officer at Microsoft but left after only 14 months in the post, in the same year Kempin left.

"He (Belluzzo) had no room to breathe on the top. When you work that directly with Ballmer and Ballmer believes 'maybe this guy could someday take over from me', my God, you will have less air to breathe, that's what it comes down to."

Microsoft representatives declined comment. Attempts to reach Belluzzo were not successful.

Several leading executives, touted by outsiders at one time or another as potential successors to Ballmer, have left the company in the last few years, most recently Windows unit chief Steven Sinofsky, who departed in November.

Before Sinofsky, Windows and online head Kevin Johnson went to run Juniper Networks Inc, Office chief Stephen Elop went to lead phone maker Nokia Oyj, while Ray Ozzie, the software guru Gates designated as Microsoft's big-picture thinker, left to start his own project.

"Ozzie is a great software guy, he knew what he was doing. But when you see Steve (Ballmer) and him on stage where he (Ozzie) opposed Steve, it was Steve's way or the highway," said Kempin.

Kempin said he spoke to Ballmer around two years ago and expressed his concerns about his management style and direction of the company, but has seen no changes since. He said he sent Ballmer and Gates copies of his new book but has yet to get a reply.

"Steve is a very good business guy, but make him a chief operating officer, not a CEO, and your business is going to go gangbusters," said Kempin. "I respect that guy (Ballmer), but there are some limitations in what he can and can't do and maybe he hasn't realized them himself."

MISSED OPPORTUNITIES

In his book, Kempin writes about how Microsoft foresaw the major moves in technology in the last decade, but bungled its entry into tablets, phones and social media, ceding leadership in the technology world to Apple Inc and others.

"They missed all the opportunities they were talking about when I was still in the company. Tablets, phones...we had a tablet going, we had tablet software when Windows XP came out, it was never followed up properly," said Kempin.

He also claims the decline of PCs is partly due to Microsoft's mismanagement of hardware makers, an area that Kempin oversaw at Microsoft.

"Just think about the insult of Microsoft coming out with a tablet themselves, trying to mimic Apple, and now they are going to come out with a notebook on top of it," said Kempin, referring to Microsoft's Surface RT tablet and soon-to-be-released Surface running Windows Pro.

Several PC makers went public with their unease about Microsoft's decision to make its own computers last year.

Kempin reserves his most pointed criticism for Ballmer.

"Is he a great CEO? I don't think so. Microsoft's board is a lame duck board, has been forever. They hire people to help them administer the company, but not to lead the company. That's the problem," said Kempin.

"They need somebody maybe 35-40 years old, a younger person who understands the Facebook Inc generation and this mobile community. They don't need this guy on stage with this fierce, aggressive look, announcing the next version of Windows and thinking he can score with that."

Holiday sales of PCs slide for first time in five years: IDC

SEATTLE (Reuters) - Holiday season sales of personal computers fell for the first time in more than five years, according to tech industry tracker IDC, as Microsoft Corp's new Windows 8 operating system failed to excite buyers and many opted for tablet devices and powerful smartphones instead of PCs.

PC makers such as Hewlett-Packard Co, Lenovo Group and Dell Inc sold 89.8 million PCs worldwide in the fourth quarter of last year, down 6.4 percent from the same quarter of 2011. That was slightly worse than expected by most.

For all of 2012, 352 million PCs were sold, down 3.2 percent from 2011. That was the first annual decline since 2001, according to IDC.

Microsoft Corp bought start-up id8 Group R2 Studios Inc as it looks to expand further in technology focused on the home and entertainment

SAN FRANCISCO (Reuters) - Microsoft Corp bought start-up id8 Group R2 Studios Inc as it looks to expand further in technology focused on the home and entertainment, a person familiar with the situation said on Wednesday.

id8 Group R2 Studios was started in 2011 by Silicon Valley entrepreneur and investor Blake Krikorian. It recently launched a Google Android application to allow users to control home heating and lighting systems from smartphones.

Krikorian's Sling Media - which was sold to EchoStar Communications in 2007 - made the "Slingbox" for watching TV on computers.

Krikorian will join Microsoft with a small team, according to the Wall Street Journal, which reported the acquisition earlier on Wednesday. Microsoft also purchased some patents owned by the start-up related to controlling electronic devices, the newspaper added.

Krikorian and a Microsoft spokesman declined to comment.

Krikorian resigned from Amazon.com Inc's board in late December after about a year and a half as a director at the company, the Internet's largest retailer.

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Microsoft New Logo in Microsoft Store

Facebook is buying Microsoft Ad technology

Facebook Inc is in negotiations with Microsoft Corp about acquiring advertising technology that could allow the social network displays ads on other websites, broadly expanding its advertising business, according to media reports on Thursday.

Facebook is in "serious" discussions with Microsoft about a deal to purchase Atlas Solutions, an ad-serving product that Microsoft acquired through its $6 billion acquisition of aQuantive in 2007, according to reports in the technology blogs Business Insider and AllThingsDigital on Thursday.

The deal could allow Facebook to significantly expand its advertising business by showing ads on third-party websites, mounting a challenge to Google Inc's DoubleClick ad network, said the reports, which cited anonymous sources.

The potential price for the acquisition was unclear, though Business Insider said the highest bid for Atlas in Microsoft's previous attempts to sell the business was $30 million.

Facebook and Microsoft representatives declined to comment.

Facebook, the world's No. 1 online social network with roughly 1 billion users, has been moving aggressively to bolster its advertising business with new capabilities, including ads on mobile devices and features that demonstrate the effectiveness of its ads to marketers.

Facebook currently generates 86 percent of its revenue, which totaled roughly $1.3 billion in the third quarter, from ads that appear on its own website.

Shares of Facebook were off 1.2 percent, or 33 cents, at $27.38 in midday trading on Thursday. Microsoft shares were up 7 cents at $26.73.

Windows 8 May Not Be Selling Well

11/19/2012 Windows 8 May Not Be Selling Well [REPORTS] Windows 8 may not be off to a strong start. Sales aren't meeting Microsoft's own expectations, a longtime company observer says. At the same time, a major online PC retailer says sales of the new OS are "slow going."

Microsoft Surface: beautiful design, slow and lack of apps

Tech bloggers and other reviewers praised Microsoft Corp's new Surface RT tablet for beautiful design but said a shortage of applications and a slow operating system meant the result was heartbreak for users.

Microsoft begins selling the Surface on Friday, joining the fight in a tablet market dominated byApple Inc's iPads and devices using Google Inc's Android system.

Reviewers given the product early to play with it said its first version paled in comparison with the iPad.

Matt Burns of TechCrunch said the tablet was great and the Windows RT operating system showed promise, but he still was not keen.

"There are simply more mature options available right now," he wrote. (http://r.reuters.com/tes53t)

Similarly, Sam Biddle of Gizmodo, a technology website, said Surface had fantastic potential but he was sharply critical of the operating system, Windows RT, saying it was underpowered, lacked functionality.

"While potential is worth your attention, it's not worth your paycheck. Surface RT gets so many things right, and pulls so many good things together into one package. But it is undercooked," he wrote. (http://r.reuters.com/xes53t)

Microsoft's Windows 8 operating system, also available on tablets, had the full range of Windows apps but Windows RT does not, and lacks compatibility with older software, Vincent Nguyen at Slashgear said. (http://r.reuters.com/pus53t)

"Microsoft hasn't done the best job explaining the differences, and many consumers are likely to buy RT only to find out they don't have the full functionality of Windows 8," added CNET's Shara Tibken. (http://r.reuters.com/nus53t)

Microsoft has said it expects to have 100,000 apps in place for the tablet by January, whereas Apple has 275,000 iPad apps available now and its tablet also runs many more iPhone apps.

"Microsoft says there will be thousands of apps at launch, with a constant stream of more coming, but its apps offerings pale next to the number Apple has made available for the iPad," Edward Baig at USA Today wrote. (http://r.reuters.com/kus53t)

Wall Street Journal's Walt Mossberg praised the availability of Microsoft Office apps and optional keyboards.

"If you can live with its tiny number of third-party apps, and somewhat disappointing battery life, it may give you the productivity some miss in other tablets," he said. (http://r.reuters.com/jus53t)

But Wired reviewer Mathew Honan warned that the tablet would not turn heads.

"Nobody asked me about my Surface. I tried flashing it all over the place. But despite my best efforts, no one seemed curious," Honan wrote. (http://r.reuters.com/ses53t)

"The only person to comment on it was a TSA agent at the Seattle airport, who told me I didn't need to take my iPad out of my bag."

Android to beat Windows in 2016: Gartner

- Google's Android operating system will be used on more computing devices thanMicrosoft's Windows within four years, data from research firm Gartner showed on Wednesday, underlining the massive shift in the technology sector.

At the end of 2016, there will be 2.3 billion computers, tablets and smartphones using Android software, compared with 2.28 billion Windows devices, Gartner data showed.

That compares to an expected 1.5 billion Windows devices by the end of this year, against 608 million using Android.

Android, which reached the market only in 2008, has risen fast to be the dominant smartphone platform, controlling two-thirds of that market. It has taken the No. 2 spot in the fast-growing tablet computer market.

The proliferation of the free software gives Google its edge on the search market - its key profit generator.

Worldwide shipments of personal computers fell by over 8 percent in the third quarter, the steepest decline since 2001, as more consumers flock to increasingly powerful tablets and smartphones for more basic computing.

Microsoft's Windows has dominated the personal computer industry for decades, but the company has struggled to keep up with shift to wireless, and in smartphones its market share is around 3 percent.

(Reporting By Tarmo Virki; Editing by Sophie Hares)

Analysis: Most companies won't be early adopters of Windows 8 (Most of people/companies may not care at all)

10/22/2012 Analysis: Most companies won't be early adopters of Windows 8

SEATTLE (Reuters) - There was once a time when the launch of a new Windows operating system was a huge deal for the technology departments in many businesses. Not anymore. Microsoft Corp's release of Windows 8 on Friday is likely to be a non-event for most companies -- and some experts say many may never adopt it. The system may appear to offer something for everyone: touch-screen functionality for tablet enthusiasts, a slick new interface for the younger set, and multiple versions to make it compatible with traditional desktop PC software. ...