Software // Enterprise Applications
12:05 PM

Vista's Financial Contribution To Microsoft Less Than Certain

The effect of Vista's launch on Microsoft's fortunes is clouded by the fact that so many computing services reside on the Web, not in the PC operating system.

For all the buildup, Vista's boost to Microsoft's financials may be less than exceptional.

Jason Maynard, a research analyst at Credit Suisse, said in a recent report that he's "skeptical about the impact from Vista, simply given the fact that so many of the exciting productivity and entertainment services reside on the Web, not in the PC operating system."

Desktop Windows generated $13.2 billion in sales during Microsoft's fiscal year ended June 30 and $10.2 billion in operating income--or 62% of Microsoft's net profits. Microsoft keeps more than three-fourths of Windows sales as profits, a margin matched by few products in the industry.

Chairman Bill Gates said recently that Microsoft is spending $8 billion to $9 billion to develop Vista and Office 2007. Launching the products, along with marketing the Xbox game system, will cost Microsoft $450 million, according to CFO Chris Liddell. That's half of a $900 million hike in sales and marketing expenses this year. Microsoft's overall operating expenses will rise by $2.7 billion this year, as the company budgets an additional $300 million for selling costs and accounts for future acquisitions. Microsoft will spend $500 million to develop data centers, search engines, and other software that can compete with Google and Yahoo.

A slip in Vista's ship date by another quarter would cost Microsoft $200 million to $400 million in revenue, Liddell says. Merrill Lynch analyst Kash Rangan says another delay is already factored into the stock price, while others say the shares could drop further. But a delay's impact on Microsoft's credibility would loom greater.

Return to main story, In Depth: The Next Windows After Vista Will Demand Radical Rethinking From Microsoft

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