Microsoft Wants PC Refresh Spending to Count as AI Spend

Microsoft wants enterprise customers and channel partners to treat PC refresh spending as part of AI investment, with Windows PCs running smaller models locally. The push comes as rising component costs, weaker PC demand and falling Windows OEM revenue pressure the market, while Microsoft promotes Copilot, Cowork and AI computers through distributors and resellers.

A hybrid AI pitch for Windows PCs

Mark Linton, corporate vice president for Windows and Device Sales, said the tokenomics of AI are getting very challenging and that having agents work on frontier models quickly becomes very expensive. Microsoft's proposed answer is to use large models where most needed, following the idea of the right model for the right job, and run smaller models locally at the edge on Windows PCs. Linton said his goal is to have PC spend be part of AI spend rather than only a PC refresh budget. In an AI hybrid world, edge devices and powerful PCs with lots of memory and capability can run suitable AI workloads on the device, keeping data local, avoiding cloud token costs, improving latency and giving more control. Copilot is only a component, and Microsoft wants all models and agents to use Windows as the platform, not only its first-party software.

Pressure on the PC market

Microsoft reported revenue in its Windows OEM and Devices division fell 22 percent from a year earlier to $3.55 billion in the first quarter of fiscal 2027, ended September 30. It warned that second-quarter revenue may be down 30 percent. Chief financial officer Amy 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. IDC said calendar third-quarter PC shipments sank to 62.7 million units, down 20.1 percent year on year, equal to 15.8 million fewer sales into distributors' warehouses. Omdia, which owns Canalys, said the impact of upstream component cost increases has fully worked its way through to end-market pricing. The datacenter construction frenzy led memory chip makers to prioritize higher-margin high-bandwidth memory over conventional DRAM, raising costs. AI PCs have also been a tough sell because of higher prices and a lack of killer applications, leading many customers to delay purchases.

Management, security and channel incentives

At the Canalys Forum, Linton said customers considering AI PC purchases want better productivity, lower costs, innovation, and secure use at scale. Microsoft plans to invest heavily in Windows platform capability and security. Partners will be able to run Windows and secure agents at the operating system level with Agent 365, Intune or Entra. Linton also pointed to Microsoft Execution Containers, announced in June, which can virtualize agents and let Intune apply policy, allowing policy-based management rather than managing agents one by one. Some quality control issues that have dogged Windows may give system administrators pause. Microsoft is also pumping money into channel programs, including AI-readiness funded headcount with top partners, and wants the channel to deploy AI internally, especially for sales teams. Dell chief financial officer David Kennedy said sales will remain compressed, with enterprises sweating assets and directing dollars toward infrastructure, though he expects conditions to become more robust later. He said more than 400 million PCs are over four years old and lack the battery life or power for AI workloads, creating pent-up demand once conditions stabilize and budgets expand. The Register doubts that 2027 will be the year of the AI desktop.

Sources: The Register