Microsoft: We Didn’t Underestimate Netbooks

Microsoft recognizes that sales of netbooks may cut into its sales and profits of Windows for laptops and desktops but it still embraces the revenue opportunity, the company’s chief financial officer told financial analysts Wednesday.

And despite what appears to be expensive pricing for Windows 7, Microsoft’s (NASDAQ: MSFT) chief money man Chris Liddell insisted that it’s still a bargain — especially if you look at it the way that he does.

“I don’t think we’ve underestimated demand for netbooks,” Liddell told a crowd of analysts at the Citi Annual Global Tech Conference Wednesday, in response to criticism that the company had been too slow to respond to the sudden switch to low-cost, limited function laptops.

“One of the great successes of last year is customers went from a 10 percent attach rate [for Windows XP] to 92 percent … 92 percent of people who buy a netbook want this Windows experience,” Liddell said. “They might be bargain hunting on the hardware side, but not on the software side.”

He added that he didn’t think Microsoft will ever achieve a 100 percent attach rate for Windows on netbooks.

Liddell also discounted arguments that Windows 7 is over-priced. While acknowledging that the retail boxed product can cost hundreds of dollars, he said when the sales price of a new system is averaged over all the various channels through which users might get Windows 7, that price comes down to $60.

He also noted the average length of time that users keep a PC is four years, so he amortized the price over that period. “For a four-year [Windows] experience, that’s $15 a year … this is not an expensive product,” Liddell added.

During his prepared remarks, Liddell also provided a little clarity about Microsoft’s July deal with Yahoo (NASDAQ: YHOO) to have Microsoft provide search technologies to the search firm while sharing in the revenues.

“There aren’t significant downsides for us … the biggest opportunity and, therefore, the greatest downside, is we can make inroads against Google (NASDAQ: GOOG),” he said.

Still, despite the fact that the relationship is a ten-year deal, he warned analysts not to look too far beyond the current agreement. “This is not meant to be stage one of a three-stage agreement.” He also cautioned analysts that, because of the details that need to be worked through, they shouldn’t expect to see payback from the Yahoo deal too soon.

“Depending on regulatory approval, fiscal year 2011 is when you start to see some impact,” Liddell said. Microsoft’s fiscal year begins July 1, meaning that the company is currently in FY 2010.