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Monday, October 02, 2006

Mixed Microsoft Message

By William Trent, CFA of Stock Market Beat

We have written before about Microsoft’s strong showing in deferred revenue, which the company attributes to advance sales of the Vista operating system. The deferred revenue, as we noted here, represents money the company has already collected for products and services that will be delivered at a future date (at which time they will show up as sales on the income statement.)

However, for some reason the analyst community insists on playing the role of Doubting Thomas. According to an InfoWorld article:
Despite this optimism, analysts still don’t expect businesses to begin adopting Vista in earnest until late 2007 or even 2008, with many waiting for the first service pack version of Vista before they begin considering an upgrade.

Microsoft’s bullish projections don’t appear to jibe with most current third-party customer surveys, such as one online survey of 314 IT professionals conducted by Computerworld in August. Just 17 percent of IT professionals say they are considering rolling out Windows Vista in the first year. Forty-one percent of respondents said they had no plans to roll out Vista, while 35 percent said they would begin testing Vista only after it ships.

Given the potential importance Vista adoption will have on the broader technology universe, the debate is an important one. InfoWorld obliges by detailing the bullish case as well:

One reason Microsoft is expecting Vista to be so successful is that the company has made a concerted effort to give customers the tools and training they need to adopt Vista across their businesses, said Brad Goldberg, general manager of the Windows Client Business Group at Microsoft. The company also put test versions of the OS into as many people’s hands as possible.
Another reason Microsoft expects businesses to warm to Vista early is that the company is doing its share to educate customers on how much money they can save by adopting it, Goldberg said. Microsoft has worked with analysts to develop customer case studies to see how much money business customers can save per PC by upgrading to Vista from their current OS.
For us, however, these arguments are a sideshow. Money talks, and corporations wouldn’t be shelling it out in advance unless they had some intention to use the product in the fairly near future.

The author may hold a position in the securities discussed. A current list of the author's holdings is available here.

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