Big Plans, Unanswered Questions For Microsoft

Microsoft reached development milestones for its three flagship products last week, releasing test versions of Windows Vista, Windows Longhorn server, and Office 2007. But a few big questions are unanswered, including whether the company can deliver those products when promised and just how it will use more than $2 billion in new spending.

The answers are important as Microsoft enters a new fiscal year, starting July 1. Last month, the company disclosed it would spend $2.4 billion more than previously revealed in fiscal 2007 and lowered its earnings forecast for the upcoming year, which pushed the price of its shares lower. In a memo to employees, CEO Steve Ballmer said Microsoft is spending more on marketing, manufacturing, hiring, and "investing heavily in our services strategy." CTO Ray Ozzie has said Microsoft could spend billions of dollars building data centers to support Internet-delivered software. Otherwise, however, company officials have been mum on details.

That could change soon. Ballmer is scheduled to speak this week at an investors conference in New York sponsored by Sanford C. Bernstein & Co., then again at Microsoft's annual meeting with financial analysts in late July. "Steve may have something up his sleeve," says Jim Allchin, co-president of Microsoft's platforms and services division. "There's more that needs to be explained."

Whether Vista will make it to market in January--Microsoft's target date after numerous delays--remains to be seen. Market research company Gartner recently warned the next version of the desktop operating system may not arrive until March. Ballmer, speaking in Tokyo last week, gave an inch: He said Vista could arrive preloaded on new PCs in January--or February. The next version of Windows Server, code-named Longhorn, is scheduled for release in the second half of next year.

Barry Crume, director of Advanced Micro Devices' partnership with Microsoft, doesn't see the launch of Vista as an inflection point for increased PC sales. "The hardware pickup on the consumer side happened last November," he says. Business demand for new machines will depend more on how compelling PC makers' new products are.

No Standing Still
Microsoft hopes to make desktop computing more compelling. During a speech at the company's Windows Hardware Engineering Conference last week, Bill Gates said Microsoft is changing Windows' boot-up routine, Internet software stack, and wireless technologies to improve performance. Vista also includes a new method of retrieving more data from RAM instead of disk, speeding up applications and reducing power consumption. "The PC is in no way standing still," Microsoft's chairman said.

Hardware and software companies need to "give performance back to the user" by making communications among PC components more efficient and designing software that takes advantage of new chips, Gates said.

The Windows interface also is changing. The beta 2 version of Vista includes new features such as Windows Meeting Space, which lets laptop and tablet users quickly share files over peer-to-peer networks, and Search Folders that can kick off saved search queries when they're opened (see story, "Windows Vista Beta 2 Features Great Search, Improved Security, Hardware Snags").

Gates has a new reason to get it right. Rival Google last week struck a three-year deal with Dell to include Google's desktop search software on millions of new PCs and make Google's home page the starting point for Web browsing on those machines .