Microsoft Corp's newest operating system, Windows XP, will be unleashed with an estimated US$1 billion marketing blitz by the personal computer industry. Top computer makers say the software won't do much to revive PC sales this year.
Dell Computer Corp, Gateway Inc and even Microsoft are downplaying the importance of Windows XP on this year's sales. Some PC makers will have the operating system available as early as mid-September and it will gradually bolster PC demand by mid-2002, executives now say.
"We are looking towards the spring of 2002 when we see a more robust demand cycle from corporations," said Michael Dell, chief executive of Dell, during a recent conference call.
The new version of the operating system that runs most PCs had led investors and analysts to expect the program to drive PC demand during the second half of this year. The 1995 release of Windows 95 fueled record PC sales and contributed to the Internet boom. Windows XP crashes less, adds photography and music features and is easier to use, said Microsoft.
A recovery in PC sales might be pushed out even further if a Washington trial court rules in favor of the US government seeking changes in Windows XP. If the operating system has to be redesigned, XP most likely will miss the Christmas season, said Rob Enderle, an industry analyst for Giga Information Group Inc, a marketing research firm that advises investors.
"Right now [XP] holds the market together," said Enderle. "It does not fuel a recovery. It keeps it from getting worse."
PC makers like new operating systems because consumers typically buy new PCs with the latest operating system installed rather than upgrade existing PCs.
When Microsoft introduced Windows 95 in August 1995, it created a sensation and PC makers saw their unit shipments increase 26 percent from the previous quarter, said International Data Corp. Microsoft is expected to spend US$200 million on marketing Windows XP while campaigns by Intel Corp, PC makers and retailers could take the total to US$1 billion. The impact of Windows XP on PC sales will first be seen in the calendar fourth quarter. The earnings in this period for major PC makers Dell, Gateway, Compaq Computer Corp and Hewlett Packard Co are all expected to be lower than last year's, according to analysts polled by Thomson Financial/First Call.
"There is a potential for some upside due to XP [in the fourth quarter] but we're not planning on it right now," said Gateway CEO Ted Waitt on a conference call in July.
Worldwide shipments of PC units are expected to be flat this year, down from 13 percent growth in calendar 2000, according to IDC. US sales are expected to decline almost 10 percent, compared to a 6.8 percent growth in 2000.
The PC makers, analysts and investors all agree that Windows XP will help create a rebound in PC sales. The question is when.
"We're calling it a mild stimulus for the fourth quarter," said Roger Kay, an analyst with IDC. "Windows XP is an improvement but it not a quantum leap like Windows 95 was."
The tech-savvy consumers who always have to have the latest computers and software will be the only ones buying in November and December, and sales will fall off again early next year, according to Jerry Dodson, president of Parnassus Investments, which owns Hewlett-Packard shares.
"It will probably be well into 2002 before most normal people buy it," Dodson said.
Microsoft itself is expecting mid-single-digit PC sales growth for its current fiscal year that started July 1, and most of it will come in its second half.
"We're not assuming the kind of surge that several of you have in your models," Microsoft Chief Financial Officer John Connors told analysts at a July meeting.
That could be a low-ball figure, said Mike Holland, manager of the Holland Balanced Fund, which has over 4 percent of its holdings in Microsoft shares.
"Historically, Microsoft has been one of the most successful pioneers of guiding lower to exceed expectations," he said.
"They have a much better shot of doing it right now because of the sentiment."
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