Windows Vista Delays Will Mean Apple Gains, Other PC Vendors Lose (DELL, GTW, HPQ, MSFT, AAPL)

by: Carl Howe posted on: March 22, 2006 | about stocks: AAPL / DELL / GTW / HPQ / MSFT / SNE

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According to Reuters and other sources, Microsoft (MSFT) has officially announced that Windows Vista won't hit the consumer market in 2006. Instead, Redmond is promising delivery for January 2007.

Many analysts are saying it doesn't matter to Microsoft, just to PC makers. But for the PC business looking for new products to sell for the holiday shopping season in 2006, this is a disaster. Consumers are going to see a lot of PCs on shelves with "Free Vista Upgrade" stickers on them, and mostly, they will pass them by. If you're Dell (DELL), Gateway (GTW), HP (HPQ), Lenovo, or Sony (SNE), that's got to hurt, no matter how good a face Microsoft puts on it.

But it's worse than that, because for the first time in a very long time, there's now a real and significant alternative on Intel: Apple's (AAPL) Mac OS X. There have been no fewer than five Mac OS X releases since Windows XP was launched, and each one keeps getting better. With Apple now pushing Intel platforms as only it can, should Apple offer its sixth release, Leopard, in time for Christmas, we could see a very Merry Christmas for Apple at the expense of Microsoft.

Will this dramatically affect Microsoft's revenue? No. But will it affect the momentum of Apple in the Intel PC industry? You bet. Just as a few percentage points of Intel's market share have created a boom for AMD and its stock price, a few percentage points of Microsoft's market share going to Apple could have a significant, material affect on its revenues and earnings.

But from a marketing point of view, there's a serious issue of credibility here. Microsoft is the largest software company in the world. It has nearly $35 billion in cash and makes more than a billion in profits every month. It has no shortage of resources to do whatever it wants. Yet, it can't be bothered to release a new version of its flagship product in more than five years. At some point, customers start asking "What are we paying for? Five year old software?" From Microsoft's current behavior of delay after delay, 2006 may become that year. And once Microsoft's monopoly power is broken, the goose that lays Bill Gates' golden eggs is dead -- and no amount of marketing will ever bring it back.

Update: Mini-Microsoft suggests that Microsoft should fire its leadership now for the delay. While that may seem farfetched, the Wall Street Journal notes this morning that Microsoft is planning a shakeup of the division, appointing Steve Sinofsky, a senior vice president, to provide more oversight. That sounds a bit like rearranging deck chairs when the company should be knocking heads. After all, when was the last time any executive was fired from Microsoft, regardless of how bad the results were? And given only two divisions in the company make money -- Office and Windows, that's an indictment of the company's management if there ever was one.

Full disclosure: I do own shares of Apple Computer, but own no shares of Microsoft.

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