Microsoft expects tough market for Windows 7

Microsoft executive Bill Koefoed answered some questions about the software giant's business prospects on Wednesday at an investment firm-sponsored technology conference.

Koefoed, who is Microsoft's general manager of investor relations, spoke at the RBC Capital Markets 2009 Technology, Media and Communications Conference in San Francisco. He was generally positive about Microsoft's business outlook -- especially with Windows 7 scheduled to ship on Oct. 22.

However, Koefoed dampened expectations about Windows 7 boosting Microsoft's bottom line right away, saying that "macroeconomics trumps all." The current economic climate is "very tough," with PC sales down 15 percent to 17 percent in the last quarter. Moreover, analyst firms have been predicting a depressed server market in the next couple of quarters going forward, he said.

Even though Windows 7 will appear for the holidays, IT budgets for 2009 are fixed, Koefoed said.

"As a result, I don't think you should expect to see a lot of business adoption of Windows 7 probably until calendar-year 2010," he said. Koefoed refused to describe Windows 7 pricing, which hasn't been announced yet.

The one bright spot for Windows sales this year has been netbooks, which are small, low-cost laptop-like devices. Initially, netbooks were viewed as a "Windows killer," as all of them initially were sold running Linux. Now, Windows XP has a "more than 90 percent" attach rate globally on netbooks, Koefoed said. He added that Microsoft sees netbooks as "incremental" to its markets, rather than cannibalistic -- meaning that people buy netbooks in addition to PCs. All versions of Windows 7 will run well on a netbook, he added.

Windows Azure, Microsoft's cloud-based "operating system," is currently being tried out by independent software vendors, system integrators and developers. Koefoed said that getting it right with them is "super important" to Microsoft. He expected that Microsoft will be going "more prime time" with Windows Azure at Microsoft's Professional Developers Conference, which is scheduled for November.

Koefoed said that Microsoft was "super happy" with its new search engine, Bing, and that the feedback from users has been good. He acknowledged the contributions of Qi Lu, president of Microsoft's Online Services Group, who formerly headed Yahoo's Engineering and Advertising Group. Lu brought in additional technical support to the Bing team.

The battle with Google on search is difficult and "going to take many years," Koefoed said. He cited the "cashback" program, a shopping discount feature of Microsoft's search engine, as one attempt to gain ground. Google holds the No. 1 position in search use, with 64 percent of the market, according to comScore's April findings.

On the virtualization front, Koefoed noted that Windows Server 2008 R2 includes a "live migration" feature with Hyper-V. It lets IT pros move virtual machines across nodes with little to no downtime for end users. Live migration will make Microsoft's virtualization solutions comparable with those of VMware at "one third of the cost," he said.

Windows Mobile 6.5 is scheduled to be released this fall, Koefoed said. He acknowledged Apple's gains with the iPhone, but said that Apple had mostly taken market share away from Nokia. Microsoft expects to be competitive in the mobile market based on price, he explained.

The last questions at the event were about Microsoft's financials. Koefoed said that Microsoft's stock went up 10 percent after the company announced various cost-savings measures. One of those measures was an employee cutback at Microsoft. Koefoed said that Microsoft was continuing to focus on efficiency with plans for "vendor rationalization" and "offshoring."

Microsoft has rationalized its capital expenditures, reducing them from $4.0 billion to $3.1 billion, Koefoed said. Other efficiencies include Microsoft's datacenter modularization approach. Microsoft has built out some server farm capacity in advance of its needs, but the company is moving more toward "just-in-time" deployments.