MS’s Windows OEM revenue fell 27% in the July–September 2026 quarter. According to MS, the decline was “driven by the Windows 10 end-of-support demand in the prior year, inventory drawdowns by OEM and channel partners, and weaker PC market demand.” As it turns out, the people who rushed to buy PCs before Windows 10 support ended last year no longer have a reason to upgrade.

Meanwhile, a significant share of PC users still has not moved on. In September 2026, nearly a year after Windows 10 support ended, Steam’s hardware survey showed Windows 11 holding a 71.34% market share after 0.37% growth, while Windows 10 recorded 0.71% growth and a 23.61% market share.

Windows OEM Revenue Fell 27% as Windows 10’s Upgrade Boom Faded

During the FY27 Q1 earnings call on October 28, CFO Amy Hood said Windows OEM revenue “was below expectations” and fell 27%, or 28% in constant currency. “Inventory levels remain elevated,” she added.

Windows OEM revenue is what MS earns from PC manufacturers such as HP, Dell, and Lenovo for preinstalling Windows. It is part of the broader Windows OEM and Devices category, which also includes Surface. According to MS’s earnings release, revenue in that category fell 22%, from $4.55 billion to $3.55 billion. MS does not disclose revenue generated solely by Windows 11, which I find odd.

What I find particularly interesting is how quickly the inventory situation reversed. In July, Hood said Windows results were “ahead of expectations as OEM and channel partners continue to build inventory.” Three months later, those partners were selling through that stock and purchasing fewer Windows licenses.

Ironically, Bing and Edge performed well. Search advertising revenue grew 12%, supported by “higher volume and rate across LinkedIn, Edge, and Bing.” This comes as MS is reducing Bing’s presence in Windows.

Windows 10’s End of Support Sold Many Windows 11 PCs in 2025

Viewed from another angle, the 27% decline appears especially severe because it is being compared with a quarter in which businesses and consumers were rushing to replace Windows 10 PCs.

In the third quarter of 2025, global PC shipments grew 8.2% to nearly 70 million units. “Worldwide PC shipments were driven by the Windows 10 end-of-support (EOS) refresh cycle in most regions,” Gartner’s Rishi Padhi said at the time. By the end of 2025, annual shipments had grown 9.1%, with fourth-quarter demand “fueled by the Windows 11 upgrade cycle,” according to Gartner.

PC manufacturers were not hiding the facts. In August 2025, Dell COO Jeff Clarke said he expected growth “driven by an aging installed base and the Windows 10 end of life.” MS acknowledged in July that it faced “a high prior-year comparable that benefited from Windows 10 end of support,” which is why we said Windows 10’s end of support was the real driver of Windows 11 sales.

Unfortunately for MS and its partners, a deadline only works once. Many people who needed a new PC bought one before October 2025, and they are unlikely to buy another just one year later.

Windows 10 Holdouts Still Are Not Switching

The remaining users are holding on, including several I know personally. Lansweeper found that Windows 10 still ran on 16.9% of the Windows PCs it tracked in July 2026 and on 21.4% of those used by small and midsized businesses. The conflicting figures may be confusing, but tracking operating-system market share has limitations. The notable point in Lansweeper’s data is that only about 2.8% of those PCs could not run Windows 11, meaning most could be upgraded if their owners chose to do so.

HP CFO Karen Parkhill said in May that “roughly 30% of the installed base” was still using Windows 10. MS did not help its case when it extended free consumer security updates for Windows 10 through October 12, 2027. “We understand that moving to a new PC can take time,” MS said.

Then there is the major issue: buying a new PC has become extremely expensive because of the memory shortage. Counterpoint reported that global PC shipments fell 21% in Q3 2026, attributing the decline to higher prices for RAM, SSDs, and processors, as well as the comparison with Q3 2025, when shipments were boosted by the Windows 10 deadline. The effect of Windows 10’s end of service on Windows 11 PC sales is no longer a secret, as all major industry analysts have now confirmed it.

To be clear, MS did not say that Windows 10 holdouts caused the 27% decline. However, as long as those users remain on Windows 10, the software giant cannot rely on another wave of Windows 11 upgrades—especially because Copilot+ PC branding did little to drive sales.

MS Expects Windows Revenue to Fall Even Further

For the October–December quarter, MS expects Windows OEM and Devices revenue to “decline in the mid-thirties.” Hood said, “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.” She added, “We expect these trends to continue through the rest of this fiscal year.”

Three months earlier, MS expected a decline “in the high teens” for the full fiscal year. It is now forecasting a drop roughly twice as steep in a single quarter.

The seemingly stoic Satya Nadella discussed “making every PC a secure agent box” capable of running AI models locally on new chips from AMD, Intel, Qualcomm, and NVIDIA. During the call, he also said, “We think of Copilot as the new OS for work.” I am not sure Windows fans will appreciate hearing that from the company that makes Windows.

Meanwhile, IDC believes Apple’s $599 MacBook Neo is “putting real pressure on the entire PC ecosystem” and will continue to do so. Apple also launched the new touch-enabled MacBook Pro, giving Windows 10 holdouts another reason to switch to the other side. That is not a good sign for the Windows PC ecosystem.

Windows 11 Needs an Upgrade Incentive That Is Not a Deadline

Windows 11 must distinguish itself by being fast and reliable. That is why improvements such as the faster right-click menu in KB5127936 do more for Windows than any AI or agentic capabilities built into the operating system.

If MS wants the remaining Windows 10 users to upgrade, it must give them a reason to choose Windows 11. My top priorities would be better privacy, no ads or recommendations, and a faster, cleaner experience.

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