Microsoft: Linux is a threat, it may mean prices cuts and less business for us

Microsoft has filed a report with the Securities and Exchange Commission (SEC) - and it looks like the Redmond giant could be in for a lean year ahead, even going as far as to hint that Linux and other open-source rivals might be to blame.

A stagnant tech market is also weighing down the world's biggest software company and, according to the filing, the company won't be expecting to repeat previous periods of rude health.

"For fiscal 2005, we believe industry-wide factors such as PC unit growth and the success of non-commercial software could significantly affect our results of operations and financial condition. PC unit growth was very strong in fiscal 2004, increasing approximately 13 per cent from fiscal 2003. We do not expect similar growth to occur in fiscal 2005," the filing stated.

As well as suffering from a lack of PC buyers, it seems Microsoft fears that the Penguin might pick up some of its market share.

"We continue to watch the evolution of open-source software development and distribution… We believe that Microsoft's share of server units grew modestly in fiscal 2004, while Linux distributions rose slightly faster on an absolute basis," the filing said.

"The increase in Linux distributions reflects some significant public announcements of support and adoption of open source software in both the server and desktop markets in the last year. To the extent open-source software products gain increasing market acceptance, sales of our products may decline, which could result in a reduction in our revenue and operating margins."

More interestingly, however, Microsoft seems to be contemplating taking a cleaver to its licence costs as a result of open-source competition. According to the filing: "To the extent opens source software gains increasing market acceptance, sales of our products may decline, we may have to reduce the prices we charge for our products, and revenue and operating margins may consequently decline."

Antitrust concerns are also playing a part in the newly modest outlook, with Gates and chums hoping to resolve all the remaining antitrust scraps for between $1.1bn and $1.2bn.

The filing lists where Microsoft has identified potential market opportunities for the future. Expect to see Microsoft gunning for the search segment, putting on big consumer tech - TV, games, video - drive and trying to woo SMEs.

For a company thought to have a cash mountain of some $60bn, such worries might seem premature but Redmond has been on a cost-cutting drive that saw sundries from fizzy pop to laundered towels for staff go, as CEO Steve Ballmer announced the company would be aiming to shave $1bn off its operating costs.