MS to hasten Longhorn release

Reed Stevenson

SEATTLE: Facing its longest-ever lag between major Windows releases, Microsoft Corp. promised this week to make its current operating system more secure and compatible with powerful personal computers to spur new sales of Windows XP.

At Microsoft's annual Windows Hardware Engineering Conference, or WinHEC, Chairman Bill Gates talked about Windows XP as a more integral part of home entertainment, improvements to its computer security and support for 64-bit computing, the next wave in microprocessor hardware. Most machines running XP, Microsoft's two-and-a-half-year-old flagship product now run on less powerful 32-bit microprocessors.

Longhorn -- the code name for the next version of Windows and Microsoft's next big bet was a key part of the conference. But executives appeared more determined to boost sales of Windows XP.

"WinHEC was not about creating excitement about Longhorn," said Rob Helm, analyst at independent researcher Direction on Microsoft. "I think existing XP sales is the main priority."

Microsoft is expecting overall sales growth to slow further in its upcoming fiscal year, which begins in July, as it pushes back releases of key software, including the next version of its corporate database software, code-named Yukon.

Microsoft is predicting that sales in the current fiscal year will grow 13.5 percent to $36.5 billion, but that growth will slow to as little as 3.4 percent in fiscal 2005.

Analysts note that Microsoft has traditionally been conservative in its estimates, but they are also predicting, on average, modest revenue growth in the year to June 2005 to $38.6 billion, only slightly above Microsoft's upper estimate of $38.2 billion, according to forecasts compiled by Reuters Research, a unit of Reuters Group Plc.

Analysts have noted that many customers who signed on for multi-year contracts guaranteeing them the right to upgrade to the latest software may not renew, since the bulk of Microsoft's major product releases happened last year with the launch of Windows Server 2003 and Office 2003.

LONG HAUL FOR LONGHORN

Microsoft recently pushed back the launch of Yukon until 2005, and Longhorn is now slated for release in the first part of 2006 -- nearly 5 years from Windows XP's launch date -- as it adds more features to the product.

At the Washington State Convention Center, where WinHEC was being held, dozens of computers running Windows XP on 64-bit chips from conference sponsor Advanced Micro Devices Inc. were available for Web browsing and e-mail.

Gates said that he expected nearly all of the chips shipped from AMD to be 64-bit by the end of 2005 and that several editions of Windows XP would support the high-end chips by the end of this year.

"This is going to be a really wonderful transition," Gates told a WinHEC audience.

To convince customers to upgrade or buy new PCs, Microsoft has embarked on an aggressive marketing campaign to tout the security features of its latest software update to Windows XP, called Service Pack 2. Jim Allchin, the vice president in charge of Windows, said he had pulled developers off Longhorn to work on the update, which is available for free.

"Microsoft wouldn't be pulling developers off of Longhorn unless this were a big deal, said Charles Di Bona, analyst at Sanford C. Bernstein & Co.

Microsoft is also planning to launch a new marketing campaign this fall -- dubbed "Windows XP Reloaded" -- to try to kick-start sales.

The company said it had sold more than 210 million copies of Windows XP as sales of software licenses averaged about 10 million per month in the last nine months, compared with average sales of 6 million per month between its release in October 2001 to July of last year.

Competitors see an opportunity, however, as they try to persuade customers to switch to Linux, the freely available operating system, as they upgrade PCs running AMD and Intel Corp.'s chips.

"Clearly our main competitor is Microsoft," said Red Hat Inc. Chief Executive Matthew Szulik, who re-launched his company's version of Linux for corporate desktops this week.

© Reuters