PC sales to plummet after glitches delay Microsoft's Vista launch

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The Independent Online

Microsoft's decision to delay the launch of its new Windows operating system into next year could wipe billions of dollars from global PC sales over the Christmas period, investors fear.

The software giant said that it needed more time to iron out glitches in the new Vista system, sending shares in PC makers lower, and having a knock-on effect on confidence in components manufacturers.

And Microsoft's own shares tumbled more than 3 per cent in overnight trading on Wall Street.

Vista is already more than a year overdue, as Microsoft works to incorporate the new features needed to reflect the growing use of digital media since the last Windows upgrade in 2001. As recently as last week, the company was still insisting both the corporate and consumer versions of Vista would be available in the second half of 2006.

Microsoft is expected this week to announce a management shake-up in the Windows division, in a bid to head off criticism of the repeated setbacks. The new head of the division is expected to be Steve Sinofsky, an executive from Microsoft's Office division with a reputation for exercising commercial discipline over software engineers.

A new trial version of Vista was shipped to some corporate customers earlier this month and Microsoft has been examining feedback from use of this and earlier drafts.

Corporate customers will start receiving the final version in November, but the consumer launch of Vista has slipped to January, meaning it will not be available on home PCs and laptops in time to make the vital Christmas sales period. Some 30 per cent of consumer PC sales are made over the holidays.

Jim Allchin, Microsoft co-president, said: "Product quality and a great out-of-box experience have been two of our key drivers for Windows Vista, and we are on track to deliver on both. But the industry requires greater lead time to deliver Windows Vista on new PCs during the holiday. We must optimise for the industry, so we've decided to separate business and consumer availability."

Computer manufacturers Hewlett-Packard and Dell were among the hardest hit by the news. Executives at Dell, in particular, had been vocal in predicting an upturn in PC sales on the release of Vista. "It makes the second-half more difficult now for PC makers," said Shaw Wu, analyst at American Technology Research. "There is less of a driver for sales."

Chipmakers including Samsung were also sharply lower in the immediate aftermath of Microsoft's announcement. Vista is expected to require significantly more memory to run, so demand for memory chips is expected to rise as it becomes widely used.

Analysts at Gartner predicted about $4bn in lost PC sales in 2006 as consumers put off purchases of new hardware until Vista is available in the New Year. That $4bn is about 2 per cent of annual global sales. Microsoft followers said the delay would shave a penny or two from earnings in the current financial year, but some warned that the damage to Vista's reputation could be more significant.

Shares in Apple rose on hopes that consumers may choose to purchase a Macintosh computer - which comes with Apple's own lauded operating system - for Christmas instead.

Some analysts expressed scepticism at that claim, though, and continued to recommend Microsoft shares. Richard Sharlund of Goldman Sachs said: "It is unfortunate and is damaging for sentiment, but software is notoriously late ... This is going to be a very big product upgrade cycle for Microsoft, and I don't think you make a decision to buy a PC or a Mac depending on whether Vista is out in November or March."