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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

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February 16, 2007 10:59 AM

What's up with Vista?

Posted by Brier Dudley

What happened with the Vista launch? Microsoft seems to be singing a different tune all of a sudden.

Here's Steve Ballmer just before the launch, in a Bloomberg story:

Ballmer, whose initial estimates for corporate uptake of Vista were more optimistic than some studies projected, now says early adoption may exceed even his expectations.

``I expect to see uptake at a pretty good rate relative to my early expectations,'' Ballmer said in an interview last week.

Then yesterday Ballmer told analysts in New York that expectations are too high for Vista. From our story:

"I'm really excited at how enthusiastic everybody is about Vista," Ballmer said during a presentation to analysts in a New York City hotel. But some independent forecasts for revenues from Vista in the 2008 fiscal year, which begins July 1, are "overly aggressive," he said.

Here's the full quote from Microsoft's transcript of the analyst meeting:

"I've looked at some of the models and reports, et cetera, about our business and what people think it looks like, and I'm really excited on how enthusiastic everybody is about Vista. I, too, am very enthusiastic about Vista. But I think sometimes the enthusiasm about this great product and the excitement and the launch, people have to understand our revenue models because I think some of the revenue forecasts I've seen out there for Windows Vista in fiscal year '08 are overly aggressive, if I could say it that way, and let me kind of walk through what drives Windows revenue so people understand why I say what I'm saying."

A few more of his comments:

"We're driving it hard, but I think some people have gotten a little overexcited."

So Microsoft isn't going to do much better than Hewlett-Packard, Dell or Intel? Quoting Ballmer:

"The thing I think there's a disconnect on for most folks whose models I've read is there's a disconnect between what people think is the growth of the PC market and what they think is Vista growth. So, either you have to increase your forecast for the total PC market, and then Vista will do just fine, or those two things are out of whack. And what I think we see is those two things tend to be a little bit out of whack in general. I mean, if Vista is going to drive a major sort of surge in PC market growth rate, you would think that would also show up in what people think about HP, Dell, Intel. There should be a lot of other people who are participating in that.

"And my basic assumption is we'll see a small surge, but a small surge doesn't mean a market that's 220 odd million PCs goes to be 200 -- if normal growth is 7, 8 percent, 9 percent developed market, it's not going to go be 12, 13, 14, 15 percent. I don't think that much new money is going to race out of the consumer's pockets into PCs. I do think PC growth will be buoyed by Vista, I believe in that, and yet I think most people think that means the PC growth rate will double year over year, which I think people are a little bit more bullish about that, but only in Microsoft. You don't see it show up in anybody else's stock, so it's a weird disconnect from my perspective."

In other words ...

"And yet I think there's a view that says we're going to do oh so much better than PC growth.

"So I merely encourage people to compare your Intel, AMD, HP, Dell forecasts, and your Windows forecasts, and then you've got to re-factor those for developed vs. emerging markets, because remember chips don't get stolen in some of these countries and software does. Or go get the IDC forecast for PC growth by business and by consumer in the developed market and say, yeah, we should do better than that, but not that much better."

So Vista sales won't be a huge increase over XP sales, apparently:

'And the things people forget is a new Windows release is primarily a chance to sustain the revenue we have. Every new Windows release is not necessarily a huge revenue growth opportunity, but if we don't have exciting, fantastic, outstanding Windows releases, there will be either a drop in the PC market, and/or there will be uptake of Linux and Mac and all of these other things. So in some senses we've got to -- the price of entry just to sustain today's Windows revenue is a very good R&D output in that area. And at least it looks to us like people are a little bit over-optimistic, or at least more optimistic than we are about Windows revenue.'

But what about exceeding those early expectations?

Also disconcerting is a new NPD report saying Vista's lagging behind XP's early sales.

Some analysts are still looking on the bright side. At Goldman Sachs, Rick Sherlund shrugged:

"We are more optimistic on PC unit growth/Vista demand for 2008 than implied by management guidance, which we view as conservative and setting the bar low for 2008," he said in a note today.

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