Microsoft's Receding Vista

The long-awaited operating system's release has been delayed. That's a blow to retailers, PC makers -- and the software giant's reputation

Consumers who have waited patiently for years for the next upgrade of Microsoft's Windows operating system will have to wait a few months more. The company announced on Mar. 21 that Windows Vista, which has been more than five years in the making, will arrive for businesses in November, but won't be delivered for consumers until next January.

Previously, Microsoft (MSFT) had said that it planned to release the major upgrade in the second half of the year. Microsoft watchers took that to mean it would arrive in September or October (see BW Online, 11/18/05, "Microsoft's New Word: Accountability").


  The delay means there won't be a new operating system to drive PC sales during the holiday shopping season. That's a blow for PC makers and retailers. "The Christmas season will be slow," says analyst David Smith, of market researcher Gartner Inc. "They're talking a delay of weeks, but, by my estimates, it's 8 to 10 weeks, and they're the most important 8 to 10 weeks of the year for retail."

Already, before the announcement, Gartner had predicted a slowdown in PC sales this year, with growth of 10.7%, compared with 15.5% last year.

Microsoft tried to play down the delay. Jim Allchin, co-president of the company's Platforms & Services Division, said he decided to hold back the release because he wanted to spend extra time doing testing so the product met his quality standards. That pushed the release time into November, which, he said, would inconvenience PC makers in the middle of the holiday rush. Only some PC makers would have had the software in time for holiday sales, so Microsoft opted to delay it for everyone.


  "We're on the home stretch here," Allchin says. "It will just take us a few extra weeks." He reckons PC makers will offer coupons that provide consumers with fee upgrades when the operating system is available.

PC makers didn't squawk at the news -- at least not publicly. "We remain ready and excited to offer Vista when it's available," says a Dell spokesman. He would not speculate on the impact on sales. Says a spokeswoman for Hewlett-Packard: "We support them in determining the most appropriate schedule for the Windows Vista launch...We look forward to focusing on an exciting post-holiday launch of the new operating system." And one notable computer maker could benefit. Apple Computer (AAPL) plans to update its own operating system as early as this year.

Microsoft had been dogged in recent weeks by concerns among some of its business partners that the test version of Vista is a power hog -- quickly draining the batteries of laptop computers. But Allchin, who has been in charge of Windows for more than a decade, says that was not the cause of the delay.


  Microsoft has a sophisticated system for tracking progress on development projects, and he saw that the number of issues still to be resolved meant the software couldn't have been released in time for holiday sales. The sticking issues, he says, were ensuring new security features are easy enough to manage, plus testing of the system with new PC designs and add-on devices.

Whatever the cause of the delays, it's a blow to Microsoft's pride. "I was stunned," says analyst Al Gillen of market researcher IDC. "I'm very surprised." He had expected the product to be available no later than September. Smith, of IDC, calls it a "black eye." The Windows upgrade was originally expected by some analysts in 2003, but Microsoft launched a huge initiative to improve security and planned major improvements in the way the operating system stored and retrieved documents -- which were later dropped as too ambitious.

Still, Allchin promises that it will be worth the long wait. "Everyone we show it to loves it," he says. "We think people will be blown away."


  Indeed, the power issues aside, reaction to the early test versions of the product has generally been good. In addition to the new security features, which combat viruses and hackers, the product has improved desktop search and multimedia features. "Initial feedback on the first feature-complete test version of Windows Vista has been quite positive," wrote Rick G. Sherlund, an analyst at Goldman Sachs, in a Mar. 20 report.

Sherlund predicts the arrival of Vista will add $1 billion to $1.5 billion in incremental revenue in the first 18 months after its release and will help usher in a period of accelerated overall revenue growth for Microsoft. The delay means that revenue ramp-up will be postponed. Shares of Microsoft dropped 2.6% in extended trading, after the delay was disclosed.

The delay will also push back something else that had been expected: Allchin's retirement. After 15 years at Microsoft, he had planned to leave when he finished this upgrade. "Quality is the top thing," Allchin says. "I'm going to stay until the quality is right."

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