Vista Sales May Be Looking Up

Microsoft's latest quarter may indicate Vista sales are better than critics believe.

Thursday, Microsoft broke sales and earnings records for its second quarter of fiscal year 2008. Statements by company executives, however, did not clarify how well Windows Vista, which launched a year ago, is actually doing in the marketplace.

One analyst suggests comparing Microsoft's latest revenue figures with related numbers, such as the growth in worldwide PC shipments. The upshot, he says, appears to indicate that Vista sales are rising in relative sync with those sales – as would be expected, given most new PCs now ship with Vista installed.

That is, Vista sales are being driven, as has been the case in recent years, by sales of new PCs.

Microsoft brought in $16.37 billion in revenues and $6.48 billion in operating income for the quarter ended Dec. 31. Further, the company raised its guidance on its predictions for the full year for financial analysts.

On a conference call with analysts Thursday, Chris Liddell, chief financial officer, said the company is on target to bring in annual revenue in the range of $59.9 billion to $60.5 billion, and $24.2 billion to $24.4 billion in operating profits. The company's fiscal year ends June 30.

During a slide presentation on a simultaneous Webcast accompanying the call, Liddell said that Microsoft's client revenue -- which includes sales of both Vista and the aging Windows XP -- grew by 16 percent year over year.

Liddell also noted that by Microsoft's measurements, new PC sales growth during the same period came in at between 14 and 16 percent.

Liddell's guidance for the full fiscal year predicts revenue gains for the client group of 13 percent to 14 percent, which is close to the most recent figures for PC and microprocessor sales.

For instance, researcher IDC reported this week that total worldwide PC processor shipments grew 12.6 percent in 2007 compared with 2006. Research firm Gartner also reported last week that, by its reckoning, worldwide PC sales rose 13.4 percent to 271.2 million units in 2007.

Microsoft Chairman Bill Gates told attendees at the 2008 International Consumer Electronics Show (CES) in Las Vegas in early January that the company had sold 100 million units of Vista. (A spokesperson later confirmed that number did not reflect holiday season sales of Vista PCs.) Ironically, officials quoted the same number on Thursday's analyst call.

"Microsoft's reports of Vista sales numbers are really hard to parse … because Microsoft earns revenue (and great margins) no matter which version of Windows people buy," Matt Rosoff, a lead analyst at research firm Directions on Microsoft, told in an e-mail interview.

"Over time, Windows revenue growth tracks PC sales growth almost exactly," he added.

Indeed, Vista sells at retail primarily on new PCs but also in shrink-wrapped boxes. Plus, corporate customers with enterprise agreements have the option to deploy either Vista or XP, or a mixture.

"These agreements don't appear to have been a huge factor financially yet but could be as customers prepare to deploy Vista and realize the only way they can get certain features is to buy enterprise agreements," Rosoff said.

While these are admittedly rough calculations, they suggest that Microsoft may already have shipped more Vista licenses than it's disclosing.

That could help account for the disparity that industry watchers observed when Gates said the company had sold 100 million units in the 11 months since Vista shipped in consumer markets. Meanwhile, approximately 270 million PCs had been sold worldwide in about the same period.

That apparent disparity set off a round of crowing among Microsoft's critics, who deduced that XP is therefore still selling strongly.

The company will neither confirm nor deny that and has repeatedly said Vista is selling as well as expected, and that the most new PCs sold come with Vista.

That bodes well for Vista going forward, but Microsoft's early overconfidence cost it some credibility.

"Microsoft set some pretty high expectations a year ago [when Vista shipped]," Al Gillen, research vice president for system software at IDC, told

Whether Vista will become the runaway success Microsoft has advertised remains to be seen. Still, if Vista sales do track new PC shipments, as suggested, then Microsoft's claims of strong sales may be more credible than many critics believe.

Sales are also expected to pick up – particularly with corporate customers – when Microsoft finally releases Vista Service Pack 1 (SP1) this quarter. In fact, the rumor mill has been buzzing lately with predictions it will be released in mid-February.

Meanwhile, Microsoft officials confirmed that they released a "refresh" of the Vista SP1 Release Candidate (RC) to approximately 15,000 testers this week.

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