Windows 98 delayed
By Suzanne Galante
September 15, 1997, 1:40 p.m. PT
Microsoft (MSFT) is delaying the release of its Windows 98
operating system, a move that already has caused the
stock to drop.
Microsoft stock dropped 7-1/4 to 130-11/16, from
of 137-15/16. The stock hit its all-time high of
150-3/4 prior to its
last earnings announcement in July, but since then has
the 130s to 140s range.
Microsoft said its Windows 98 operating system will not be
released until the second quarter of 1998. It
scheduled for a first-quarter 1998 release. The new
Windows integrates Internet Explorer 4.0 and other
features into the operating system.
The need to supply an upgrade for both Windows 3.1 and
Windows 95 users in one box is what has caused the
Phil Holden, product manager for the Windows group.
Originally, the Windows 95 upgrade was to be released
first quarter of 1998, and then, three to six months
upgrade for Windows 3.1 would become available.
Pressure from channel partners such as Egghead, as well as
business customers, altered Microsoft's plan. "The
result is that
we will have to do additional testing and that will
move us to Q2,"
said Holden. "There will now be one upgrade for all
users, and that takes additional time."
This is not the first time that the product release
date has been
pushed back. Early reports said the operating system was
expected to be out by November, but the ship date then was
pushed back to the first quarter of 1998.
Microsoft CFO Gregory Maffei told investors at the
annual financial analyst meeting in July that they
expect Windows 98 to drive the same type of revenue
recent OS upgrades have.
"Only in years when we have blockbuster releases have
growth rates well over 25 percent," Maffei said. "None
of us is
projecting Windows 98 to be a blockbuster like Windows
an important upgrade, but it won't have the same financial
Maffei noted that the "first and foremost" source of
problems next year will be a drop-off in PC shipments
as a result
of the company's saturation of the desktop software
Microsoft also said there will be fewer chances to cut
the future, given its plans to boost research and
spending to $2.6 billion in fiscal 1998, from $2.2
billion in the
fiscal year just ended. The company plans to increase
both research and development and sales and marketing
the lack of marketing enthusiasm Windows 98 has received.
Microsoft said it will not push Windows 98 with the
that it pushed Windows 95.
The Windows 98 postponement comes on the heels of Maffei's
quote in the September 15 edition of Barron's in which
the company was "very leery of [the stock's] current
Barry Randall, an analyst with Dain Bosworth, said that
Microsoft has made these kinds of comments before. And
company keeps growing. "Maffei said the same thing two
ago," Randall said. "He thinks the stock is too high
and they have
been saying so publicly and privately for some time."
"The company is very forthcoming to the financial
about its financial prospects," Randall added. "It
tries to give as
much guidance as it can, but it is a bit hazier about
will be released."
Randall maintained that "[Microsoft] is still the
right horse to
ride." It is okay for Microsoft to trade at a premium,
because it has a 20-year track record of living up to
Current stock market prices indicate the company is
billion, according to Barron's.
Randall said that Microsoft stock will rattle around
for the next six
months, but the company's future is hardly in doubt.
you think it is overpriced, it goes up again," he
said, noting that
this security will continue trading at a premium. "You
you pay for...If you are willing to endure higher
valuation and the
possibility that it will fall in the short term,
you'll be rewarded in
the long run." Randall.
Maffei qualified such long-term flag-waving. "It
doesn't serve the
interests of long-term investors when the price gets
whack," he said. While Maffei declined to make
projections, he said Microsoft's revenues will be
lucky to grow as
fast as the market for personal computers over the next 12
That translates to a growth rate of 15 to 20 percent,
from the 55 percent growth Microsoft experienced last
the 43 percent growth it experienced the previous
"We just don't have any new blockbuster products coming to
market," Maffei told Barron's.
Reuters contributed to this report.
It takes Microsoft 10 years to get rid of the mess when you boot, why should we believe that you can make Windows easy to program in only two years ?" - S.Jobs to Microsoft's J. Allchin
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