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Microsoft Windows 7 could be the technology sector's savior

Releases of past Windows systems created demand for related products and services. But are consumers in the mood to spend?

October 23, 2009|Alex Pham

Can Windows 7 repair Microsoft Corp.'s reputation and trigger enough sales to pull the technology sector out of its financial funk?

That seemed to be the overriding question Thursday as Microsoft officially took the wraps off its latest operating system, much of which was already public knowledge, with more than 8 million testers having used it since January.

In the past, thousands of technology companies could count on each release of a new Windows operating system to deliver its own economic stimulus: Millions of consumers would rush out to buy faster computers and companies would splurge on more powerful computer systems.

This time, the recession has pulled the plug on spending, leaving many to wonder how much of a jolt Windows 7 can deliver to a beleaguered sector.

"Windows 7 represents a significant opportunity for many companies," said Richard Shim, an analyst with technology research firm IDC, "but it's coming at a time when the industry is struggling." IDC predicted that global PC sales in 2009 would be flat at best.

Much rides on the success of Windows 7.

Microsoft is counting on the new operating system to lift its sales, which fell last fiscal year for the first time since the company went public in 1986.

Computer makers and software companies are praying that Windows 7 will set off a wave of demand for their products and services. Even consumer electronics companies see Windows 7-based computers as a way to make their devices more desirable as gateways for on-demand entertainment programs.

The operating system "is something that the entire industry has been waiting for," said Roger Kay, an analyst with Endpoint Technologies who has done consulting for Microsoft. "With almost all corporate buying of technology on hold for the past year, Windows 7 finally gives them something they can sink their teeth into."

Steve Ballmer, Microsoft's boisterous chief executive, certainly hoped so.

"Today is an important day for the computer industry, certainly for Microsoft and, I hope, perhaps even most importantly, for all of the customers around the world," Ballmer said during the company's event.

According to a study conducted by IDC and paid for by Microsoft, for every dollar the Redmond, Wash., company generates by selling Windows 7, other companies stand to reap more than $18.50 by selling products and services related to the operating system.

Windows 7 is pivotal to Microsoft's finances. Last fiscal year, for example, Microsoft's client division, which includes Windows, brought in 25% of the company's revenue but accounted for 53% of its profit.

Windows 7 is also an attempt to repair Microsoft's reputation, which was badly damaged by the launch of its last operating system, Windows Vista, in 2006. Vista proved too large for many computers to handle, and it didn't work with many devices right away, including some printers and cameras.

Many of those issues were resolved, but companies still shied away from upgrading their computers to Vista and stuck with Microsoft's previous operating system, XP, which was launched in 2001. Consequently, computers running XP outnumber those running Vista by four to three, according to IDC.

Now, however, many of those computers are getting old, and Microsoft is hoping that Windows 7 will give buyers an excuse to spring for a new machine.

Will it work?

"There were more than 700 people lined up outside the Microsoft store in Scottsdale when it opened up this morning," said Katherine Egbert, an analyst with Jefferies & Co., referring to Thursday's debut in Arizona of Microsoft's first retail store. Some queued up the night before, bringing doughnuts, pizza and Microsoft Xbox 360 game consoles to pass the time.

"I'd say that's pretty good demand and pretty good interest," Egbert said.

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alex.pham@latimes.com

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(BEGIN TEXT OF INFOBOX)

The evolution of Windows

Microsoft is counting on Windows 7 to lift its sales, which fell last fiscal year for the first time. Here is a look at how the Windows operating systems have changed over the years:

1985: Windows 1.0 replaces Microsoft's MS-DOS and lets PC users point and click with a mouse instead of having to type every command.

1987: Windows 2.0 piggybacks onto Intel's 286 and 386 processors to improve speed.

1990: Windows 3.0 opens the way for other software developers to build programs that can run on Microsoft's operating system.

1993: Windows NT, which stands for "new technology," is designed to run larger and more complex business applications.

1995: Windows 95 introduces a new user interface and supports faster 32-bit computing.

1998: Windows 98, specifically designed for consumers, carries the motto "Works Better, Plays Better."

2000: Windows Millennium Edition, or Windows Me, supports more multimedia functions such as music and video playback.

2001: Windows XP is built on the more solid and secure NT foundation but has the more consumer-friendly interface of Windows 95.

2006: Windows Vista is released to less-than-rave reviews.

2009: Windows 7 is based on the Vista codebase but designed to be faster, simpler and more reliable.

Source: Times reporting

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