Is that reflected in sales figures?
They do acknowledge competition from Apple(OS X and iPad) and Google(Chromebook) and OS X has been offering a very big and popular alternative to 'the entire Windows OS' since inception.
How can you say Windows already lost while they are shipping on 85% of the PCs and laptops in the US and much higher worldwide?
Sales figures are retrospective; this section of their 10-K is forward looking.
Also, if you define the market to include smartphones and tablets, I'm pretty sure Microsoft doesn't have 85% market share. The open question is whether that broader definition represents the future of "the computer market" or whether it should remain a separate category.
Of course, you're welcome to your own interpretation - lots of people read it very differently than I did.
I am not arguing they are wrong, I am just unable to google concrete data for PC and smarthphone + tablets usage in a recent time period.
Gartner says PC sales in 2011 will be <400 million. I'm pretty sure that's mostly Windows: http://online.wsj.com/article/SB1000142405274870330090457617...
iPad sales looking like 40 million (or more) for 2011: http://blogs.computerworld.com/18550/apple_2011_ipad_sales_h...
Smartphone sales were 100 million in Q2 alone; Windows share of that was 1.6% (!): http://www.computerworld.com/s/article/9219112/Gartner_Smart...