Will Windows 7 Catalyze the PC Upgrade Cycle?

How long can enterprises milk their existing PCs without having to upgrade? The answer for now is: Quite awhile, perhaps forever. But technology chieftains are betting (praying?) that there’s a big PC upgrade cycle looming and the Windows 7 Oct. 22 launch will be the catalyst.

The consensus view is that companies will have to upgrade their PCs at some point. Many of them have stretched the desktop replacement cycle perhaps as much as a year beyond the usual 3 to 3.5 year refresh rate.

Dell CEO Michael Dell recently summed up the consensus:

I think what we are seeing certainly is a big deferral of purchases among corporations but when we talk to them, the thing I’m hearing is they are planning on a pretty big 2010 client refresh, and they are sort of planning around Windows 7. They’ve passed over Vista and they are sort of planning for that now.

I think the client installed base is getting pretty old in these companies and I think there will be quite a powerful cycle of upgrades in the client environment.

That said this PC upgrade cycle may be different this time. Virtualization will be in. ROI will be in. Hoteling and maybe even thin clients will get play. And the other entrant that could really disrupt the PC upgrade cycle. Nettops, the cousin of the netbook. Here’s Intel CEO Paul Otellini from the chipmaker’s investor powwow:

“The old boring desktop is about dead,” said Otellini. “(But) there’s an 800 million unit installed base and 45 percent of them are more than three years.” Otellini noted that there is an evolution in design on the desktop, pointing out HP’s touch screen design. Also Atom powered desktops are a growth market.

“Nettops are the under recognized cousin of netbooks,” said Otellini, who indicated that these nettops could replace desktops. The game isn’t to reinvent the desktop, but “milk” the 800 million installed base.

The big question is whether Windows 7 serves as a catalyst for the PC upgrade cycle. There are millions of long-in-the-tooth corporate desktops. And if those desktops get replaced with nettops it’s not clear whether Windows 7 is the winner.

Mary Jo Foley writes:

Microsoft has demonstrated that test builds of even its heftiest (and priciest) Windows 7 SKUs can run on netbooks. But here’s the rub: PC makers are expected to choose Windows 7 Starter Edition or possibly Windows 7 Home Premium to preload on new netbooks because those SKUs will be the cheapest. Microsoft recently removed its three-concurrent-application restriction on Windows 7 Starter Edition, but that low-end version is still missing a number of features that Microsoft is touting as Windows 7 selling points.

Also see: Will the Windows 7 price be right?

The other wild-card here is the economy. If the economic picture doesn’t improve companies may just try to milk their PCs a little longer.

Deutsche Bank analyst Chris Whitmore writes in a recent research note:

The reluctance of Corporates to migrate to Vista (~75% of install base on XP or older) suggests the PC installed base is quite old and will require an upgrade to effectively run Win 7 (despite its modest system requirements). In the interim, we expect users to extend the useful lives of PCs for as long as possible and generally opt for lower end configurations (‘good enough’) and netbooks (XP).

According to Whitmore an improving economy will make his 2010 PC unit growth estimates conservative. If not, XP will make do again.

In any case, there’s a huge gap between the installed base vs. PC shipments that at some point will close. This installed base vs. PC shipments is largely attributed to Vista. Enterprises have largely held out from Vista and plan the XP to Windows 7 jump. The good news: XP has allowed companies to squeeze more out of their machines. The bad news: Eventually, these companies will need a new OS and the PCs riding shotgun.

Whitmore says:

We expect the magnitude of PC demand following the release of Win 7 to be contingent on macro improvement, particularly among corporates who historically have been slower than consumers to adopt new technology due to extensive testing before rollout. Further, current IT budgets are still under pressure and we expect corporates to extend the useful life of currently installed PCs for as long as possible.

The charts tell the tale. According to Gartner data, the consumer has adopted Vista at a faster rate than the enterprise. That blue bar below indicates the potential XP to Windows 7 pool.

If that crowd jumps from XP to Windows 7 the Windows operating system mix should look like this:

However, a lot can go wrong—especially on the economic front. Tech executives are hoping that the industry doesn’t find out just how long you can stretch a Windows XP desktop.

Comments

[doubleshortetf:]

Why should I upgrade to Win 7 when happy with XP?

Days of new PC every 3 year is over and most older PCs (5 yrs or less) will run fine with enough RAM (about 1GB) on XP. Win 7 may see decent upgrade demand from Vista users disgusted with Vista but I don't think there will be sizable new upgrade cycle in this economy.

And like most Microsoft products, 2nd release of Vista AKA 7 will be better. I can go on and on about other MSFT products which are much better on 2nd release...

By the way, I'm MSFT alumni.

Jun 08 10:30 AM

[Neurotic Nomad:]

The days of spiked sales at OS launches are over. Once upon a time, most computer owners were also computer hobbyists (or worked in IT). In other words, nearly 100% of the market were of the upgrade-your-OS type.

While the total number of these people is as high (or higher) than it ever has been, they now only make up a small percentage of the total market. The computer has gone mainstream. Geeks once ruled the market, but the maturity of the industry outgrew them.

I expect that the VAST majority of Windows 7 license sales will go to people and businesses that build computers for other people to use and not to end users installing it on their own machine for their own use.

Jun 08 01:13 PM

[bobbobwhite:]

Until cloud computing becomes a reality and demands a new box, I will plug along on my 4 year old(however, 4 gigs RAM)XP Pro enabled OS. Seen enough horror stories with Vista to scare me off screaming into the night.

I detest Windows 8 browser as it is very unstable, so hope that W7 OS is not more of the same old same old MS crap . It will be though, I have learned too well, so take that to Vegas with a 99.99% probability and win big.

Jun 08 01:26 PM

[Zenfar:]

XP will be Classic Coke, they should call it Windows Classic and offer it forever.

I think Windows 7 will start a PC upgrade cycle, those PC that didn't upgrade to Vista have some pretty old boxes at this point.

Jun 08 01:34 PM

[Kris Tuttle:]

The other competition that is really eating at Windows is the browser. Since my XP machines will be able to run high end browsers like Firefox, Chrome, Safari and so on the OS doesn't matter as much. Since there is no real need to upgrade applications on Windows (that I know of) the move to Windows 7 is more of a "nice to do" rather than a need. Enterprises will no doubt move to it for exciting reasons like management, security, support and so on but there's no evidence we've seen that shows how fast it will happen.

What Windows 7 should do however for MSFT is at least get them out of this punishing situation of people not wanting to even buy Windows computer if they get stuck running Vista. Whether it is deserved or not (we never tried Vista) the negative label has certainly stuck.

Windows 7 should be good enough so that if someone wants to buy a new Dell laptop they will be happier about doing it with Windows 7 and will probably save some money versus a similar MBP running MacOS.

Jun 09 08:37 AM

[another.ana...:]

There will be a migration/upgrade cycle when Win 7 comes out alright---to APPL when the early suckers er--adopters realize that Win 7 is Vista in a new dress. And an expensive one at that.

Ayuh

Jun 10 05:19 PM

[Susan Connor:]

So, how many of you switched over already to windows 7 today? Is it the samo samo Microsft blue screen of death or did they finally come out with something worthwhile...might be time for them by now. 7 is my lucky number so I will try to get the download done soon.

Oct 22 08:11 PM