The folks at Pacific Crest Securities are at it again, talking about the implications of Microsoft’s (MSFT) forthcoming Windows 7 operating system. Monday, the firm’s analysts produced a massive report noting improvements of the software and implications for the Netbook market and for chip and computer makers.
Tuesday, Microsoft analyst Brendan Barnicle has written up the results of a panel call that Pacific Crest conducted Monday regarding impressions of Windows 7. Barnicle talked with 3 analysts who follow Mr. Softie’s products: Joe Wilcox from Microsoft Watch; Ed Bott from ZDNet; Paul THurrott from Paul Thurrott’s SuperSite for Windows.
Barnicle says all three “viewed Windows 7 as an improvement over Vista because of functionality, interface and lack of demanding new hardware requirements.”
Sinofsky’s running the show…
Barnicle has some interesting ancilliary findings. The accelerated pace of release of Windows 7 is because of the “new management team running Windows,” he declares, including Steven Sinofsky, who Jim Allchin leading the engineering team, and who was the star engineer of the Office product group for a while. Sinofsky “has done a very good job of running a disciplined engineering operation and he is largely choosing to exclude Windows 7 features that would knock Windows 7 off its timeline.” Wow, they really want to get this thing out the door.
A service pack?
But what is Windows 7, exactly? A service pack for Vista? Well, yes and no, says Barnicle in a phone call I had with him Tuesday afternoon. “This is an evolution of Vista rather than a revolution,” says Barnicle. In his opinion, many of the things they chucked from Vista are showing up in Windows 7. Hmm. Sounds like a service pack.
Will it sell, and for how much?
Call it what you will, what matters is how many copies Microsoft will sell and for how much. Barnicle thinks the price when sold on Netbook computers will be more expensive than the current Windows XP Home Edition cost of $25, on average, but still less than the blended five-year average price of all Windows licenses, which is $50. So, he’s guessing Microsoft will sell it for as much as $35. A higher ASP means Netbooks are going upmarket, basically cannibalizing the existing laptop market. And that’s good, if demand turns out to be price-elastic and people buy more computers. Barnicle estimates that if the industry sells 28 million Netbooks running a $35 copy of Windows, it could add 2 cents per share to Microsoft earnings in fiscal 2010.
Copying the Apple business model
Why is Sinofsky and his team apparently in such a heat to get this thing out the door? “I wonder if this becomes more of a practice for Microsoft, of releasing a new OS once every year to 1.5 years,” muses Barnicle. “Apple (AAPL) has been doing this for a long time,” he notes. “80% of Apple’s installed base upgrades to a new version [of the OS X operating system] every year and a half.
“If Microsoft could get that model in their installed base, the payoff would be enormous,” concludes Barnicle.
Microsoft shares Tuesday were up 26 cents, or 1.46%, at $18.09.