I've been warning Microsoft for months that it needs to counter the unending swell of negativity around its Windows Vista operating system. But the company has responded in only a lukewarm fashion thus far, issuing the occasional whitepaper and carting out research and sales figures that say everything is just fine. Well, Apple's Switcher ads, know-nothing tech pundits and bloggers, and a growing consensus that Vista is just plain awful may just finally be having an effect on Microsoft: This week, analysts at Sanford C. Bernstein lowered their financial estimates for Microsoft's 2008 and 2009 fiscal years. The reason? Windows Vista.
"Support for Vista has been battered across all enterprise sizes and corporate constituencies," the report notes. "As a consequence, the Vista cycle looks likely to be materially less robust than indicated in our prior survey."
The Sanford C. Bernstein analysts lowered their fiscal 2008 revenue estimates for Microsoft by $49 million and 2009 revenue estimates by $395 million. Neither of these are dramatic numbers for a company the size of Microsoft. But the analysts believe that Microsoft's earnings per share will fall from a previous estimate of $2.20 to $2.17, which should be a bit troubling.
The analysts blame Vista's "overwhelmingly bad publicity," which, while undeserved, has certainly done much to form widely-held opinions with both individuals and businesses. Anecdotally, I'm often asked by friends and acquaintances about new computer purchases, and its striking how often I've been told that they're aware of how "bad" Vista is as they ask what they can do to avoid it or at least mitigate the problems.
The problem is pure perception, and the analysts note at one point in the report that "almost no feature of the new OS is now seen as a meaningful positive driver for adoption." Further exacerbating the issue is that Vista is a major Windows upgrade, one that typically requires new PC hardware, an added expensive that's hitting right in the middle of the worst economic climate of the past two decades.
Sanford C. Bernstein expects Microsoft to ship the successor to Windows Vista, called Windows 7, in the second quarter of 2010, about two years from now. Fortunately, they say that Microsoft is "well-positioned strategically versus its traditional competitors and in a reasonably solid position to fight off its newer rivals" during this time period. They expect Microsoft to bounce back when Windows 7 hits, and Sanford C. Bernstein has raised its fiscal 2010 revenue projection for Microsoft by $429 million as a result.