Microsoft Delays Windows 98 Release

Microsoft Corp.s Windows 98 operating system upgrade has been delayed again, with delivery now likely in the second quarter of 1998 rather than the first, a company executive said Monday.

Microsoft stock dropped $7.25 to close at $130.6875 in heavy Nasdaq trading after disclosure of the delay, the latest news to dampen perceptions about the software giants prospects for growth over the coming year.

Phil Holden, product manager for the Microsoft Windows group, said delivery was deferred after pretty consistent feedback from customers and suppliers who indicated they wanted a single product that would upgrade both Windows 3.1 and Windows 95.

 

Previously Microsoft had planned to deliver an initial product that would upgrade only Windows 95 desktops, and then follow that several months later with a version for the older 3.1 system.

But that plan was rejected by corporate customers and retailers. The whole point of our decision is to really make it a lot easier for both customers and suppliers alike by putting out only one product, Holden said.

While Windows 95 has been hugely successful since its launch in August 1995 and already is installed on more than 100 million personal computers, it is only just now surpassing the popularity of the older Windows 3.1 system. By years end Windows 3.1 is still expected to be installed on nearly 90 million desktops, compared with a projected 131.2 million for Windows 95, according to International Data Corp.

Even Microsoft executives acknowledge that Windows 98 which originally had been expected to be released in 1997 will be nowhere near the blockbuster product that Windows 95 was, as it offers relatively modest improvements for most users.

But millions of enthusiasts still are expected to head to retail stores when the new product is released. Microsoft has not yet said how it plans to price or package Windows 98 for retail sale.

Goldman Sachs analyst Rick Sherlund, who disclosed the delay in a report to clients Monday, said the change would not cause Microsoft to miss earnings estimates, although it reduced the potential for the company to beat expectations. We view this as disappointing given that we had hoped that the release of Windows 98 would generate significant upgrades and providesome upside to our published estimates during the March and June quarters, Sherlund said in a brief report.

Microsoft executives repeatedly have tried to lower expectations for the software giant after earnings growth that averaged 54 percent annually for the past two years, noting that the company has few major products scheduled for release in the current fiscal year that began July 1.

Most recently, Microsoft Chief Financial Officer Greg Maffei was quoted in the weekly Barrons as reiterating his view that the companys stock is overvalued.

Among the new features of Windows 98 is a user interface that integrates version 4.0 of Microsoft Internet Explorer, due to be formally launched Sept. 30.

But with IE 4.0 available for free over the Internet, many customers will see no need to buy the Windows 98 upgrade, which is mainly aimed at consumer users, analysts say.

And business users interested in upgrading likely will want to wait for version 5.0 of the more powerful Windows NT system, which is expected out in the second half of 1998, unless the projected delivery date slips.