SEATTLE.- Microsoft Corp’s Windows Vista is starting to see massadoption from businesses nearly a year after it was released, thecompany said while predicting a strong first holiday season for theproduct.
“We feel like we are starting to hit our stride notonly in demand, but in deployment in business,” Kevin Johnson,president of Microsoft’s platform and services group, said in aninterview.
Microsoft delivered quarterly results last week thateclipsed Wall Street’s most bullish forecasts, helped in part by strongdemand for Vista, the latest upgrade to its flagship Windows operatingsystem. Vista was introduced in January.
Vista’s success was notalways a foregone conclusion. Early Vista buyers complained about thelack of compatibility with existing devices and software programs.
Microsoftalso buckled to PC manufacturer demands that the company delay thescheduled transition to Vista and extend sales of its previous Windowsoperating system, Windows XP, for another five months because somecustomers preferred XP.
In a note to clients on Wednesday,Bernstein Research analyst Charles Di Bona said he thinks Vista’supgrade cycle is “underappreciated” and expects growth at the Windowsbusiness to be stronger than market expectations.
Di Bonaforecasts Windows revenue to grow by 15 percent in this fiscal yearending in June versus Microsoft’s own estimate of an increase of 12percent to 13 percent. Each percentage point of growth represents about$150 million in revenue and roughly $110 million in operating profit,based on previous results.
Windows runs on more than 90 percentof the world’s computers and Microsoft makes about 75 cents in profitfor every dollar in Windows sales. The Windows client businessgenerated $15 billion in revenue is fiscal 2007.
Premium and piracy
Revenueat the segment, Microsoft’s largest and most profitable unit, rose 25percent in the September quarter, boosted by a PC market growing ataround 15 percent.
In addition, improved measures to curb piracyand greater adoption of higher-margin, premium versions of Vista helpedpush the segment’s sales above PC market growth, Johnson said in theinterview this week.
Microsoft executives have said for yearsthat being able to crack down on pirated versions of its software willhelp drive significant increases in sales. Chief Executive SteveBallmer has said that more than 20 percent of its software runningaround the world is pirated.
Vista comes with a newauthentication program that sends security updates and improves serviceto users of genuine copies of Windows. Johnson said the company hasmade progress in educating consumers to the advantages of buying moreexpensive, non-pirated versions.
As consumers use theircomputers more for home entertainment, Microsoft has boosted thepercentage of higher-end versions of Windows. Premium versionsaccounted for about 75 percent of all Windows copies in the firstquarter, compared to about 59 percent a year earlier, Di Bona said inhis report.
Microsoft’s Johnson said the company should see apick-up in corporate deployment of Vista after the release of WindowsVista Service Pack 1, the first major update to the new operatingsystem.
A sign of business customers’ intent to upgrade was a 27percent increase in unearned revenue at the Windows business during thepast quarter, Johnson said.
Unearned, or deferred, revenuereflects long-term contracts on the balance sheet that have been signedbut not recognized as income until the product is delivered. In thiscase, it is when the customers start deploying Windows Vista.