Microsoft wants enterprise customers to start thinking about PC refreshes using the same mindset – and line in the budget – as AI investments. The problem? Rising component costs caused by the proliferation of AI datacenters mean many clients are delaying client refreshes.
In a call to arms, Microsoft became the headline sponsor of the Canalys Forum in Barcelona early last month for the first time ever. Redmond needs distributors and resellers that convene at the event annually to get behind Copilot, Cowork and, more generally, AI computers.
Mark Linton, corporate veep for Windows and Device Sales, took to the stage to preach to a room he is hoping to convert.
"What we're seeing is the tokenomics of [AI] is getting very challenging," he said. "Having agents working on frontier models quickly becomes very expensive."
Redmond's proposed solution is to use those massive LLMs where most needed, "the right model for the right job," running smaller models locally at the edge on Windows PCs. "My goal, if we're successful in pivoting Windows to the agentic platform, is to have PC spend be part of the AI spend versus just PC refresh budget," he said.
"In an AI hybrid world, you'll be able to use edge devices, powerful PCs with lots of memory, lots of capability to run your AI workloads that are appropriate right there on the device. You keep the data locally. Of course, you don't have the token cost of the cloud. You have better latency, and you have more control."
Copilot is merely a component. This is not only about customers using Microsoft "first-party software" – it's for all models and all agents to use Windows as the platform, added Linton.
Goodness knows, Windows does need a shot in the arm. Microsoft last week reported profit and loss accounts for Q1 of its fiscal 2027, ended September 30, and revenue in the Windows OEM and Devices division shrank 22 percent from last year to $3.55 billion. Microsoft warned revenue generated in its Q2 may be down 30 percent.
"Growth will continue to be impacted by elevated inventory levels, PC market demand and a prior year comparable that benefited from Windows 10 end of support," Microsoft CFO Amy Hood said on an earnings call.
Market watcher IDC said calendar Q3 PC shipments sank to 62.7 million units, down 20.1 percent year-on-year, translating into 15.8 million fewer sales into distributors' warehouses. Tough macroeconomic conditions coupled with rising memory costs mean tough times for the PC industry.
Omdia – which owns Canalys – said: "The impact of upstream component cost increases has now fully worked its way through to end-market pricing, with consumers and IT decision-makers responding accordingly."
Reg readers know why component costs are going up. The datacenter construction frenzy meant memory chip makers could make more money from higher-margin HBM than conventional DRAM, prompting them to prioritize production of the former.
But AI PCs have been a tough sell from the start, as higher prices and a lack of killer applications meant many customers delayed purchases. Microsoft has to convince the market of the benefits – including trade customers as well as those in charge of procurement at enterprises.
Once more, the pitch for AI PCs
Back at the Canalys Forum, Microsoft's Linton claimed customers mulling AI PC purchases want better productivity, to reduce costs, to innovate, and to be able to use these computers securely and at scale.
Microsoft is going to invest heavily in Windows from both the platform capability and security to enable these ends. So, if you are a Microsoft partner, you'll be able to run Windows and secure agents at the operating system level with Agent 365, with Intune, or with Entra.
Linton added: "We announced in June some of the technology in Windows, in particular Microsoft Execution Containers (MXC). And so essentially you can virtualize agents, and then you can use Intune to give them policy. And so other platforms, you have to manage agent by agent. Windows, you'll be able to do it policy-based, much like you manage people and network resources.
"You will have agents for all, and you need to know how to manage them, track them, audit them, and then ensure that they're contained in the right way. So we're doing that at the operating system primitive level."
Some of the quality control issues that have dogged Windows may give some sysadmins pause for thought about the grand claims made by the Windows exec.
Still, Microsoft is on a mission, and it knows how to attract thousands of resellers by dangling financial incentives in their direction. Linton said it is pumping money into channel programs, including AI-readiness funded headcount with "top partners" to "get this hybrid AI story moving."
Microsoft wants the channel to deploy AI internally too, "especially for your sales team" because "if they're using it, they're able to sell it."
Dell isn’t hopeful of an uplift in PC demand this year. David Kennedy, chief financial officer, said sales will remain "compressed."
"The reality is most enterprises this year for their IT budgets are sweating those assets out a little bit more and what dollars they have, they're trying to build out their infrastructure side," he told the Citi TMT conference in September.
"As we go forward, I think you'll see it [become] a little bit more robust. Our main focus will be on those higher ASP (average sales price) commercial boxes as part of the AI storyboard that's there."
He reckons there are more than 400 million PCs owned by customers that are "over four years old", and with the "cheapest token being closest to the data, none of those installed base PCs will have the battery life or the power to do AI workloads on them. So there is a pent-up demand that we believe will come once it stabilizes and once IT budgets get a little bit more settled and expanded."
Will 2027 be the year of the AI desktop? The Reg suspects not, though readers can do what they always do and speak their brains in the comments section. ®