For many of the regularly caffeinated it was the closing of 600 Starbucks locations; for a large portion of the medical community, the announcement of the sinking crocs ship. As for the tech geeks, it was surely Microsoft’s first-ever drop in annual Windows sales that made them realize: Oh my, the economy really is messed up!

In this case, however, the economy is not the only culprit. Microsoft’s Q4 report to the U.S. SEC includes a rundown of their risk and competition factors, and on that list are both Linux and open source solutions.

Giant Down!

Though profit slumped across all of Microsoft's business segments in Q4, it was the Client division that suffered a particularly bad blow in the form of a 33% decline.

Numerically speaking, Microsoft reported a Q4 net profit of US$ 3.045 billion, or 34 cents per share, compared to the same period last year, which topped out at US$ 4.297 billion, or 46 cents per share.
In a kicked-while-down fashion, the announcement of the poor results sent Microsoft shares down 8 percent.

Talk about not being able to catch a break, eh?

Pointing Fingers

So who’s at fault? Well, we can’t say enough times how badly the economy sucks, so the economy sucks! Among other obvious reasons is Apple’s growing share in the U.S. market.And now, interestingly enough, there’s Linux. From Microsoft’s 10-k submission to the SEC:

"The Linux operating available without payment under a General Public License, [and] has gained some acceptance, especially in emerging markets, as competitive pressures lead OEMs to reduce costs and new, lower-price PC form-factors gain adoption."

They specifically name Red Hat and Canonical as competition,and claim that smaller open source enterprises and community projects have endangered their "money for software licenses" model as well: 

Learning Opportunities

"Certain 'open source' software business models challenge our license-based software model. These firms do not bear the full costs of research and development for the software. Some of these firms may build upon Microsoft ideas that we provide to them free or at low royalties in connection with our interoperability initiatives."

And then there’s the mobile phenomenon as consumers continue to migrate away from their conventional PCs. "OEMs have been working to make the Google Android mobile operating system more compatible with small form-factor PCs or netbooks," cried the report.

And finally, in yet another kicked-while-down fashion, the report calls out Microsoft’s own partners as contributors to their demise: "Partners such as Hewlett-Packard and Intel have been actively working with alternative Linux-based operating systems."

Giant Not Getting Up (Yet) !

We’re not going to lie people; things aren’t looking good in Microsoft’s neck of the woods. Additionally, the software beast offered little hope for a turnaround until next year, despite the positive spin they put on the company’s prospects at their annual financial analysts meeting:

"We still see conditions being challenging for the balance of this calendar year," said Christopher Liddell, chief financial officer, Microsoft. “At least sequentially, we are seeing a little bit of growth. While things are not necessarily getting better, they may have bottomed out.”