Microsoft Investors Don't Like The View Of Windows Vista

The drop in sales of Microsoft's (MSFT) Windows software last quarter in the face of healthy PC shipments worldwide looks like another black eye for the company's Windows Vista release.

Microsoft shares fell 6.2% to close at 29.83 on Friday, a day after the Redmond, Wash., company posted mixed fiscal third-quarter results and gave low guidance for the current quarter.

Windows sales were one of the big disappointments in the results for the quarter ended March 31. Revenue from the client unit, which consists mostly of Windows PC software, fell about 2% from the year-earlier quarter, excluding a one-time boost a year ago from revenue deferrals tied to a delay in the launch of Vista.

The drop came at a time when a new operating system typically is hitting its stride, after the initial bugs have been fixed. It also came at a time when market trackers Gartner and IDC had separately reported better-than-expected global PC shipments in the January-March quarter. Gartner pegged unit growth at 12.3%; IDC put it at 14.6%.

"For the long-term health of the company, you don't want your core product to not be received well and not be getting deployed," said Matt Rosoff, an analyst at independent research firm Directions on Microsoft.

Microsoft blamed the Windows client revenue shortfall on three factors. First, PC makers had bought an oversupply of Windows licenses in the previous quarter. Second, PC sales were greater in emerging markets, where buyers tend to get cheaper versions of Windows with fewer features. Third, software piracy, especially in China, rose last quarter.

Microsoft also said comparisons with the third quarter of 2007 were tough because there was a short-term spike in sales after the retail launch of Windows Vista on Jan. 30, 2007. Windows sales last quarter would have been up 4% if not for the sales bump, the company said.

Source: http://www.investors.com/editorial/IBDArticles.asp?artsec=17&issue=20080425