One of the key assumptions we hear out of the bloodied big cap Tech bulls has been the upcoming release of Vista, the next generation Windows OS. Given Mister Softee’s size, its membership in the Dow, Nasdaq100 and S&P500, it is an obviously important equity.
I have differed from this crowd in that I assume the market has already discounted much of the new OS and Office software — their release dates are well known, the projected upgrade cycle and sales data is public.
What if, however, we are both wrong — and Vista slips its release data again? Consider the following update from GMSV:
"Some of Microsoft’s closest friends are warning the company in public what they surely must have been telling it privately — that the long-awaited and long-delayed Vista update of Windows still needs a lot of work. And if that’s true, Microsoft is impaled on the tines of a Morton’s Fork.
Robert McLaws, a .NET developer and Vista beta tester and blogger lays out a picture of a still-unstable Beta 2 version vs. a deadline crunch that just invites mistakes.
"I’ve been defending Microsoft’s ship schedule for Windows Vista for quite some time. Up to this point, I’ve been confident that Vista would be at the quality level it needs to be by RC1 [Release Candidate 1] to make the launch fantastic. Having tested several builds between Beta 2 and today, I hate to say that I no longer feel that way. Beta 2 was a disappointment on many levels. It was nowhere near as stable as it should have been, and was a huge memory hog."
McLaws advises pushing the launch from January (see "Don’t you know Lunar New Year is the new Christmas?") to the end of February, adding a Beta 3 version and taking the inevitable heat. "Don’t defend it, just announce it. There’s no point in trying to put a PR spin on it, because nobody is going to listen anyways. Let your thousands of beta testers cheer you for making the right decision, and tell Wall Street to go to hell," he writes. Among those bobbing in agreement was Robert Scoble, until recently Microsoft’s voice in the blogosphere. "If this ships [to the factory] in October, I will recommend not installing it and waiting for the first service pack. There’s no way the quality will be high enough to trust it if it ships early. I hope Microsoft takes the time to do this right."
Now, a 30-60 day delay is no big deal in the scheme of things. Since it misses the Xmas holidays, its far less important than say their iPod challenger missing the November 1 sales push by 60 days. Plus, we have long known that deadline problems at Microsoft are part of the environment; they don’t exactly surprise anyone anymore.
Still, with the retirement of BIll Gates, and continued management strife, GMSV notes that:
"Redmond is under intense pressure to get this sucker out the door. "Vista has become an almost uncontrollable beast, and everything depends on it," writes Ryan Stewart on ZDNet. "Vista is a monster; it’s big, complex, and central to everything Microsoft wants to do. According to people I talk to, WPF [Windows Presentation Foundation] won’t ship until Vista does. Couple that with the fact that the Expression suite is going to be delayed even further and the "Experience Hub" that Ray Ozzie talked about in his speech last week becomes more of a pipe dream. Vista is the key, and they have to drive adoption by releasing before the Christmas season. If people aren’t buying new computers with Vista this season, then Microsoft’s estimates are going to be way off."
So here are the options we may be looking at: An especially buggy January release of the new OS Vista — or yet another 30-60 day delay on its release. And people wonder why I am less than sanguine on big cap tech in general, and MSFT in particular.
I suspect big cap tech is nowhere near finished bottoming . . .
UPDATE: August 2, 2006 2:11pm
"Microsoft Corp. may have to wait at least a year for most U.S. companies to
switch to the new version of its Windows operating system, according to a survey
About 50 percent of companies either won’t deploy Windows Vista at all or
will wait at least 13 months after the system’s November corporate release to
begin installation, said Jupiter analyst Joe Wilcox, who surveyed 207 companies
with more than 100 employees. An additional 13 percent had never heard of the
new operating system.
The results suggest a setback for Chief Executive Steve Ballmer’s plan to use
Vista to revive sales growth in Microsoft’s $13.2 billion Windows business.
Windows runs almost 95 percent of the world’s personal computers, and Vista,
more than two years behind schedule, will be the first new version from
Microsoft in five years."
Vista testers to Microsoft: Even the bugs aren’t stable yet
GMSV, August 01, 2006, 11:02 AM
Businesses in no hurry to buy Vista
BLOOMBERG, August 1, 2006
Looking at the SOX, it’s been hitting the major Fibonacci retracement levels from the ’02 low to the ’06 high.
I had a head and shoulders drawn that measured down to 425, the 38% Fibonacci level. It sliced through that easily and went on to 385, the 50% level, where it bounced.
Next stop on the downside is support at 350. The 62% Fib level is 344. I wouldn’t bet against Signori Fibonacci on this one.
For what it’s worth, I don’t really care when Vista ships. I plan on building myself a new Core 2 Duo box later this year (my current computer is 2 years old), and I’m in the market for a new laptop (probably HPQ) when the mobile versions of the chip ship later this month. I plan on running XP for at least another year.
A Vista delay won’t be good for INTC, but the new chips are so good maybe it’ll be entertainment software (games) that drive sales. That’s pretty much all I need an upgrade for. My P4 does just fine with web surfing and financial software. It’s always the latest eye-candy that demands more power and resources – as MSFT is discovering as they turn their OS into an even bigger amusement park. ;-)
Barry, why do you assume the market hasn’t priced in the probabilities of a Vista delay? Given MSFT’s performance in the past on it, I’d think the market would be surprised if there wasn’t ongoing problems with it.
Off topic: Housing news that CNBC hasn’t reported, mortgage applications are continuing to tumble according to the MBA: http://www.mbaa.org/NewsandMedia/PressCenter/43771.htm
After listening to a whole lotta Homie conference calls this week, the tenor alone told me that these guys aren’t anticipating a soft landing anymore. This news from the MBA backs that up. People aren’t just waiting for lower rates, they need lower home prices.
This is a recent piece of information from an obscure source.
As “efficient” as the market is (which is to say, not very), I simply doubt this has been integrated yet.
BTW, what we do in discussing and disseminating this info is part of that efficiency . . .
Craig, not as OT as you think. I don’t think many people are holding their breath for Vista, and if my predictions are come true, we should be in the middle of a full fledged real estate crash about the time Vista is finally released. And no, the market hasn’t priced a real estate crash and recession into the equation or Barry’s predictions would be on schedule. Commercial real estate will lag residential (larry) the writing is on the wall. There will be plenty of vacant retail and former real estate, mortgage, title etc. office space available too, and fewer desktops for Vista.
Yeah, I’ve got my eye on the commercial real estate market as the next shoe to drop too.
And if you’re interested in fun conference calls, listen to RYL’s. Very contentious, particularly the last 20 minutes.
Barry, the market won’t price in an event which it doesn’t foresee at all (9/11’s effect on defense stocks is the best example I can think of), but here the market is looking at Vista’s launch and constantly re-evaluating the probability of its occurrence at any given time. How much does this new information change the existing odds? It’s very hard to say, since this guy may merely be confirming what oddsmakers already assumed about the product.
I know most people here tend to be short term, macro focused traders, but for those of us with 3-5 year holding periods, whether MSFT releases Vista in January or February is pretty irrelevant, as even Barry notes. No one knows if it will be a good investment for the next year or two, but I think looking back at the end of the decade, people will think that the low 20’s was an eminently reasonable price to pay for a business that generates in excess of $1B in cash a month. As one value manger says, it’s like buying A-Rod in a rotisserie baseball draft for the price of Melky Cabrera (thank god they don’t count errors in roto league…)
As Joe mentioned the cash flow is the most interesting aspect of Microsoft. My problem is that for a supposedly cheap stock, its dividend is sitting at 36 cents (1.5%). What are they doing with all this cash flow? They invest it in low margin businesses, some of which they haven’t ever shown any competence in managing. If Microsoft doubled the amount of cash they were handing out or their stock price dropped by 50%, I would be signficantly more interested.
Nation’s top skyscraper giant plans to exit Atlanta market
Equity Office Properties, Atlanta’s top office landlord and the largest owner of skyscrapers in the country, will sell its local towers and go home, complaining that Atlanta’s economy is less… (It sucks).
I also can’t imagine who is sitting around waiting to buy a new computer (to meet minimum requirements) so they can buy a new OPERATING SYSTEM. Hello. what does it do? Windows XP is excellent and I think it will be around for a long time.
The reviews I have read on Vista is that there is nothing compelling to upgrade and that means corporations are not going to be buying. They will incorporate it in their new replacement purchases eventually, but those cycles have stretched out to 5 years from 3.
Home users want a $500 laptop and are not interested in doubling the price just to run Vista.
Barry’s right about this being “newsworthy”. I was stunned by MSFT’s CC, emphatic public statements, as well as the analyst projections for 07 that rely upon the jan release date. (OTOH, there were a few that noted msft’s rev recognition methodology might offer a buffer.)
but if you google “vista bug” or “vista delay” and/or various combinations you will find an enormous amount of chatter out there posted by the testers themselves.
bottom line: some say buggy, some say it’s fine… but most agree this thing is just eye candy. for the vast majority of normal computer users this thing is just a humongous gigabyte eating O/S that does the same exact things as XP. in other words, there’s nothing there there.
I’ve owned wintel machines only… until I decided to experiment with an apple laptop.
you know those commercials with the apple and pc guys… apple is going to have a field day with Vista.
PS what happens to MSFT’s stock once the Bill and Melinda Gates foundation are done using the auction to raise cash? ya think spreading the other $20B out thru 2011 will make a dent?
I would caution anyone against thinking businesses won’t buy Vista. Microsoft (and Cisco for that matter) have an amazing ability to get regulations modified so that their equipment is the only equipment that is regulation compliant. Give it about two years, and you’ll have auditors raking you over the coals if you are still running XP. Microsoft can already make people pay an extra hundred to upgrade from XP Home. (I’m a network admin in a heavily regulated industry.)
I told my computer geeks (the guys who come out to take care of our wireless network needs at home) that MSFT was telling people Vista would ship at Christmas time (this was about 5 months ago). They looked at each other and laughed, saying there was NO WAY it could possibly ship by then. They said it was too huge (too many lines of code) to be out by then, and even if it were, they would never recommend it to their clients for AT LEAST a year so that the bugs could be worked out first. Funny, 2 weeks after that, the first delay was announced.
‘Memory hog’ is not an issue. Memory is dirt cheap with enough memory to satisfy costing less that what many workers earn in an hour. The rest I believe is calculated marketing. Talk like this is free marketing for Microsoft. From a marketing standpoint the more the better. Eventually it will ship. Eventually everyone will use it. Doesn’t that just suck to think you are simply being used as a tool for free marketing by the Microsoft machine?
Remeber, unless you’re an Apple fanatic (and I would say you have to be a fanatic to use Apple) the more times you here the word ‘Vista’ the more likely you are to buy Vista sooner, than later. Marketing 101.
As an investor (not a trader) I own MSFT for the long term. They have in the past paid special dividends, and may do so in the future. They are supporting their share price with buybacks. This is a company that is not going away, despite the endless jawboning, critiquing, prognosticating and analyzing it is subjected to.
Vista will be released, it will be late, it will be a memory hog, it will be buggy. When in the history of this company has it released a new OS where circumstances have been otherwise?
“Microsoft Corp. may have to wait at least a year for most U.S. companies to switch to the new version of its Windows operating system, according to a survey by JupiterResearch.
About 50 percent of companies either won’t deploy Windows Vista at all or will wait at least 13 months after the system’s November corporate release to begin installation, said Jupiter analyst Joe Wilcox, who surveyed 207 companies with more than 100 employees. An additional 13 percent had never heard of the new operating system.
The results suggest a setback for Chief Executive Steve Ballmer’s plan to use Vista to revive sales growth in Microsoft’s $13.2 billion Windows business. Windows runs almost 95 percent of the world’s personal computers, and Vista, more than two years behind schedule, will be the first new version from Microsoft in five years.”
–Businesses in no hurry to buy Vista
What does this say about the future of “tech” as an investment?
Study: Women like tech toys more than shoes
By Edward C. Baig, USA TODAY Tue Aug 1, 11:04 AM ET
NEW YORK – Is a plasma TV a girl’s new best friend?
An Oxygen Network survey released Tuesday found that more than three out of four women said they’d choose the TV over a diamond solitaire necklace. Women preferred a top-of-the-line cellphone to designer shoes by a similar margin. And a little white iPod narrowly trumped a little black dress.
Many companies only just finally upgraded from Windows98 to Windows XP last year and some even this year. The upgrade cycle will start with early adopters and continue for years. It just doesn’t matter than many businesses won’t buy it right away. Buy why should this upgrade cycle should be any different for MSFT stock than the XP upgrade cycle. I don’t see a reason. Xbox? No. Zunes? No. What then?
” Microsoft can already make people pay an extra hundred to upgrade from XP Home.”
I just read yesterday they can’t even get 100 bucks out the 70 million users of Windows 98 and they discontinued support on July 11.
I can also assure you the Barry’s article is dead on about business not adopting. Even when IBM ordered new machines with the license for XP they stripped it off and re-imaged the machines, to NT is many cases. It was several years before they moved to XP.
I’m in banking and insurance on the IT side. The auditors would hang me if they found an XP Home box in the office. There are always slow adopters, but in some industries you have no choice. As soon as Vista is ready for release, watch the articles start popping up describing how the Vista security features are essential and XP Pro is no longer good enough. As an NA, I don’t want to upgrade, and I’ll push it off as long as I can, but I’m resigned to the fact that management will force me at some point to upgrade for regulatory compliance.
Linux is getting better and better every day with every upgrade. WIth 1GB of RAM recommended for Vista i find it amazing that there are so many people who consider to pay money to MSFT and upgrade.
I am writing this post on old Celeron 1GHz box with 512MB running Ubuntu/KDE. I did not reset the machine for 3+ months – i am not kidding. Even more interesting – my mother (she is 66 years old) uses the box to read the news. And i am not afraid that she will click ads and install something, because this is Linux. She uses celeron box when she does not use her laptop running from Knoppix LiveCD and i am not kidding again. The laptop’s hard disk died half an year ago and i decided that $100+ for a new hard disk does not worth it and put a Live CD in.
two weeks ago I installed Ubuntu on Sony Vaio VGN laptop and it leaves only one Win32 machine at home (laptop with XP home edition).
At my office we run mainly Solaris (Unix) and Linux machines. Some guys insist on Win32 – XP Pro for them. No upgrade is gonna to happen.
How many different hardware parts does a MAC opsys have to work on?
How many different hardware parts does Windows’ opsys have to work on?