Following last Friday's announcement that Vista is on schedule, it appears that Microsoft has made much faster progress than many (including Gartner) had expected in getting its next Windows OS ready for release. Given the patchy nature of the Beta releases we saw earlier this year, this is a noteworthy achievement, and it says much about the company's determination to meet the deadline it set for itself in March.

However, we still question the wisdom of a general (consumer) release in January. The impact of staging such a significant product launch immediately after the holiday period can only be detrimental for the PC industry as a whole. Some PC buyers will inevitably delay buying new PCs to make sure they get the new OS preloaded, resulting in demand shifting from the months of November and December (the months of highest demand in the PC market calendar, when prices are generally higher) to January and February (when buyers expect prices to be discounted). The net effect for PC OEMs is likely to be a shortfall in revenue for the fourth quarter of this year that will not be entirely made up for by "Vista demand" in the first quarter of 2007. Even if Microsoft supports a coupon upgrade for holiday season buyers in an attempt to alleviate this, OEMs will bear much of the cost of distributing the new OS to consumers and handling the support calls that follow when they install Vista.

So, although we salute Microsoft’s dogged determination, we believe it is demonstrating scant regard for the PC ecosystem on which it depends. With OEM sales of Windows accounting for the majority of its $13 billion Client BU revenue and PC OEMs enduring tough market conditions, this is a decision that Microsoft may come to regret in the years ahead. The average operating margin for PC OEMs continues to be less than 2%, and any revenue shortfall risks triggering further market consolidation. These considerations may yet persuade Microsoft to push back the Vista launch.