Microsoft is in a lot of trouble certainly. Reading both sides of the aisle on Microsoft, I think the products Microsoft produces for Businesses (SQl Server, Office Pro, etc.) will keep them from losing a significant chunk of PC sales to Businesses. However, Businesses only account for 40% of Microsoft PC Sales (based on Calculations I did off of Microsoft earnings press releases).
If they can't restructure their company they will have to eventually reduce in size significantly to maintain profitability.