Hot Stocks: Microsoft's Windows 7 Will Win Big Despite a Slow Start

By Bob Blandeburgo
Associate Editor
Money Morning

Microsoft Corp.'s (Nasdaq: MSFT) soon-to-debut operating system - Windows 7 is one of the company's fastest, most stable versions of Windows yet, and a pre-release version is generating an overwhelmingly positive buzz.

Market-research firm International Data Corp. (NYSE: IDC) estimates that 78% of enterprise users will have Windows 7 desktops, marking the first time a Microsoft operating system has achieved such dominance since Windows XP, which was released in October 2001.

Current plans call for Windows 7 to be released in late October. Upgrades will range in price from $119 to $219, while new purchases will range from $199 to $319, according to the latest available information.

The product is an important one for the software giant. Back in April, when Microsoft announced the first year-over-year revenue decline in the company's 23-year history as a public company, the mere confirmation that it was on track to deliver Windows 7 during its 2010 fiscal year was enough to send the firm's stock up 4% in after-hours trading - even with the lackluster results.

Corporate interest in Windows 7 is strong, according to Bill Veghte, Microsoft's senior vice president for the Windows business, who said that more than 10,000 companies are evaluating the Windows 7 release candidate, a pre-release version that closely resembles the finished product.

Numbers that large are usually seen only after the company releases the final version to PC manufacturers, Veghte said at a recent UBS AG (NYSE: UBS) Global Technology & Services Conference.

Where Microsoft may find the going a bit rougher is in the consumer market, where the adoption of Windows 7 may be slow due to a predecessor product that created so much ill will that even the mention of its name is enough to make PC users clench their fists in remembered frustration.That predecessor product was Windows Vista.

Before Vista's release, numerous PC makers affixed small "Designed for Windows XP/Windows Vista Capable" stickers to their products in an effort to assure reluctant consumers they could buy a PC today and upgrade to Vista when it was released. Since then, a lawsuit has been filed in a Seattle federal district court alleging that Microsoft lowered the system requirements to enable a computer to be "Vista Capable" - a change that was allegedly aimed at maintaining sales of current XP-based machines.

The lawsuit brought to light private e-mails exchanged between executives from Microsoft and the PC companies that demonstrated widespread worries about the "Windows Vista Capable" program. One Microsoft executive -- Vice President Mike Nash -- revealed he purchased a laptop with the "Vista Capable" sticker and was disappointed when he couldn't run all the features of Vista due to varying tiers of system requirements for the six versions of the operating system.

"I personally got burned," Nash wrote of his Vista experience. "I now have a $2,100 e-mail machine."

A resolution in the lawsuit has yet to be reached, but since Vista's January 2007 release, Microsoft has also been forced to fight it out in the court of public opinion. Last year, the company launched "The Mojave Experiment," a survey in which a group of consumers who had received poor testimonials on Vista were shown "Windows Mojave," a supposed new operating system from Microsoft that actually was Vista.

While the Mojave Experiment showed the users actually enjoyed Vista once they used it, the survey itself came under fire in the blogosphere for not presenting a real-world test to the group. For instance, it didn't take them through an installation of Vista, which was one of the primary criticisms.

The Mojave Experiment "is not about saying Vista is perfect, or that all these people fell in love with it," Ben Carlson, chief strategy officer for marketing firm. Bradley and Montgomery, told The New York Times. Instead, the experiment was meant to show "what people have heard about Vista is different from the reality."

When Windows 7 is released on Oct. 22, Microsoft won't be giving it away to burned Vista users, but does hope to make amends with recession-friendly upgrade prices for anyone who pre-orders the operating system between now and July 11. Users buying new PCs with Vista preinstalled will be issued a voucher for a free copy of Windows 7 now through January 2010.

Just as word of mouth hurt Vista, it will be word of mouth that may ultimately help Windows 7.

"Some would argue that Windows 7 is the first Windows release that we've ever done that actually consumes less resources than its predecessor," Veghte said. Users running the Windows 7 release candidate have found this to be true.

The challenge for Microsoft: Convince end-users and IT professionals that this is true.

[Editor's Note: Tech-industry expert Bob Blandeburgo most recently wrote about the U.S. high-tech sector's prospects as part of Money Morning's mid-year forecast series, and also detailed the marketplace battle between the Apple Inc. iPhone and the Palm Inc. Pre in a "Hot Stocks" column.

Looking for the next hot stock? The next hot market? Look no further. A new offer from Money Morning is a double-barreled bonus for investors looking for profit plays that aren't already on every broker's "Buy" list. Noted financial commentator Peter D. Schiff's new book - "The Little Book of Bull Moves in Bear Markets" - shows investors how to profit no matter which way the market moves, while our monthly newsletter, The Money Map Report, provides an ongoing analysis of the global financial markets, as well as some of the best profit plays you'll find anywhere - including investments from such markets as Taiwan and China. To find out how to get both the book and the newsletter, check out our newest offer.]

News and Related Story Links: