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Waiting (even longer) for Vista
Microsofts latest delay of the release of its new operating system will hurt PC and chip stocks and wont win the company any friends on Wall Street.
By Robert Walberg
Microsofts new operating system, Vista, is aptly named. Vista means a distant view through, or along, an avenue or opening. And for consumers, Vista will remain in the distance a little longer.
Shortly after Tuesdays close, Microsoft announced that it was delaying the launch of its long-awaited product until January 2007. The business version will be available in November of this year.
This is the second time that Microsoft (MSFT, news, msgs), the publisher of MSN Money, delayed the unveiling of its most important product release since Windows 95. Although the company pushed back the Vista launch to consumers by a mere 8 to 10 weeks, the timing couldnt be worse. The product will not be available for the 2006 holiday shopping season, and thats bad news for PC, chip and hard-drive makers that were counting on Vista to pull customers into the stores.
A bigger deal for Wall Street than Main Street
From a long-term perspective the decision to delay Vista shouldnt hurt Microsoft too badly. A couple of months wont make that big a difference to most consumers, especially if the product ends up matching performance expectations. And with the recent growth in gift cards, as long as Microsoft doesnt delay Vista any longer, PC sales will merely be pushed back a month or so.
For PC sellers counting a late holiday surge related to Vista such news might not be that soothing, but to the consumer its better that the product be free of bugs than on time. In other words, Microsofts announcement was a much bigger deal to Wall Street than it was to Main Street.
More from MSN Money
Earnings expectations throughout the PC universe will be adjusted to reflect the likelihood of reduced computer sales this year. Multiples on stocks sensitive to the PC cycles like Intel (INTC, news, msgs), Dell (DELL, news, msgs), Advanced Micro Devices (AMD, news, msgs) and Nvidia (NVDA, news, msgs) will contract. Retailers such as Best Buy (BBY, news, msgs) and Circuit City Stores (CC, news, msgs) might also take a brief hit.
But what revenues will be lost over the short-term will be gained over the long-term. Consequently, any weakness related to the delay of Vista offers patient investors a good buying opportunity. If Vista generates anywhere near the influence and excitement generated by the release of Windows 95, todays bearish reaction will prove to be much ado about nothing.
Bumbling PR, bad execution and a buying opportunity?
But it must be said that Microsoft handled the issue poorly and that wont win it any friends on Wall Street. The company delayed the Vista announcement until the close of trading, hours after it delivered good news regarding another one its high-profile products, the Xbox 360. The decision to sit on the story hints of manipulation and analysts dont take to kindly to such actions.
Microsoft must also answer to critics that claim the company has lost its execution edge. Whereas Apple Computer (AAPL, news, msgs) continues to deliver one consumer hit after another, on time or even ahead of schedule, Microsoft is fast building a reputation for missing deadline after deadline. In fact, the delay in revenue recognition is a small problem compared to the potential loss of credibility with its partners and with the Street.
For Microsoft there can be no more delays. Vista must be released according to the most recent guidance or its fate could be sealed before it ever launches. Assuming no more mistakes, Microsofts stock should find support near $26.50. Related companies could easily take similar hits between 5% and 7%.
Pullbacks of this magnitude will provide excellent entry or re-entry points to those investors willing to look past the limited setback to a time when Vista finally delivers on its build-up and drives strong sales growth throughout the PC industry.
At the time of publication, Robert Walberg did not own or control shares of companies mentioned in this column.
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