The negative perception of Windows Vista may be catching up to Microsoft in
the bank. On Wednesday a financial analyst firm lowered its revenue estimate
for Microsoft's 2008 and 2009 fiscal years, citing a negative perception about
the OS that is affecting its adoption by businesses.

The research report by Sanford C. Bernstein analysts also hinted at the release
date for the next version of Windows, code-named Windows 7. In the report, analysts
said they expect Windows 7 to be released in the second quarter of 2010.

In the report, analysts Charles J. Di Bona, Maureen Murphy and Mariel A. Hardi
lowered their revenue estimates for Microsoft by US$49 million for fiscal 2008
and by $395 million for fiscal 2009. While the 2008 revision didn't affect the
firm's earnings estimate of $1.91 per share for that year, it lowered its 2009
estimate to $2.17 from $2.20, according to the report.

"Support for Vista has been battered across all enterprise sizes and corporate
constituencies," the report stated. "As a consequence, the Vista cycle
looks likely to be materially less robust than indicated in our prior survey."

The key factor has been "overwhelmingly bad publicity" for Vista,
particularly about the option for enterprise licensees to downgrade to XP from
Vista, and the potential
for companies to skip Vista in favor of Windows 7.

The downgrade option has been especially troublesome for Microsoft, which in
some cases has had to extend the time it will sell XP due to customer demand.

The negative publicity has left businesses with a perception that there is
no good reason for them to upgrade, according to the Bernstein report. "Almost
no feature of the new OS is now seen as a meaningful positive driver for adoption,"
the analysts said.

Independent analyst Brian Madden concurred. "From a company standpoint,
there is not a single damn reason people should use Vista," he said. "Will
you sell another widget because of Vista? No. And besides, Vista has so many
hardware requirements that you increase your costs."

The Bernstein report also cites costs associated with Vista, which would require
some companies to upgrade their desktop hardware because of the increased system
requirements, a further impediment to adoption.

Moreover, some features of Vista that Microsoft promoted as key reasons to
upgrade, such as security, have been undermined by negative publicity around
tools like User Account Control, a new security feature many customers have
griped about, according to the report.

The report wasn't all bad news for Microsoft, however. Despite the lowered
expectations, Microsoft remains "well-positioned strategically versus its
traditional competitors and in a reasonably solid position to fight off its
newer rivals," according to the report.

Analysts also raised their revenue expectations for fiscal 2010 by $429 million
to reflect a "modest retail bounce" related to the expected launch
in the second quarter of 2010 of Windows 7. Microsoft has not set a definite
date for the release of that OS, saying only that it would be available sometime
in late 2009 or early 2010.

IDG News Service

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