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PC world hopes Vista pumps up sales

The PC and software companies that rely on Microsoft's acumen are banking on Vista to pump up their sales in 2007.
/ Source: The Associated Press

Sometimes the march of technology can lull us to sleep.

Consider the personal computer. Even as PCs have developed insane levels of memory and power, enabling fantastic storehouses of videos and photos, the machines themselves have gotten less exciting. Owning a PC once felt like dipping a toe in the future. Now the device is as revolutionary as a refrigerator.

So for many buyers, price is the biggest factor. And that helps make the industry brutal for PC makers — a trend that came into sharp focus in 2006.

Worldwide PC sales were on track to grow a healthy 10 percent for the year, but not without turmoil. The top two vendors, Dell Inc. and Hewlett-Packard Co., stumbled through internal strife and endured a third quarter in which U.S. PC sales actually dropped for the first time since 2002.

And yet at the dawn of 2007, PC makers are talking a big game, arguing that buyers should open their wallets a bit wider than usual. The occasion? The new Windows Vista from Microsoft Corp., the first new Windows PC operating system since 2001. It hit the business market Nov. 30 and goes to consumers Jan. 30.

( is a joint venture of Microsoft and NBC Universal News.)

Windows runs 90 percent of the world’s PCs and is expected to bring Microsoft more than $14 billion in revenue in its current fiscal year — almost all of which stays in the company as profit.

However, the launch might be an even bigger deal for what Microsoft likes to call the Windows “ecosystem” — the sprawl of companies that sell PCs and assorted software and services. According to a Microsoft-commissioned study by the IDC market research firm, every dollar of Windows revenue translates into $18 in sales for someone else — in the U.S. alone.

PC makers are hoping Vista spurs more computer sales, to be sure, though that is a dicey prospect. Businesses need many months to test their programs on the new software, which will keep Vista from making a splash right away. Plus, they could be more hesitant than usual because of broader conditions that are expected to lead to an overall slowdown in spending on information technology.

For many consumers, the machines they have are good enough. That’s why Forrester Research analyst Ted Schadler believes Vista will be running PCs in just 12 million of the 93 million U.S. homes with computers by the end of 2007, with the previous operating system, Windows XP, still fueling most of the rest.

The thing that PC makers do like about Vista, though, is that they hope it sparks one of those rare moments in which price isn’t a consumer’s most important consideration. That’s because some of the enhancements in Vista — including tighter security and a slick graphical interface — require higher-end hardware setups.

For example, a $359 machine available this month on Dell’s Web site included a free upgrade to Vista when it is released. But that PC included only 512 megabytes of system memory — which is the minimum for Vista to run, and not enough for some of its new features. One gigabyte of memory is encouraged, and 2 gigabytes are described as optimal. One gigabyte of memory added $65 to the price. Two gigs upped it by $195.

Dell’s Web site also recommends a 256-megabyte video card from ATI Technologies to best take advantage of Vista’s graphics capabilities. That’s $100 more than the video card that would otherwise come with the machine.

At rival Hewlett-Packard, executives are pleased that Vista at the very least gives tech buyers something to consider. With Vista hitting the market at the same time as other products from Microsoft, including the Office 2007 line of software and back-end server products for businesses, HP hopes companies call on its $15 billion services unit to help them figure out how to proceed.

“This is a point of disruption in the market,” said Margaret Lewis, a marketing director for chip maker Advanced Micro Devices Inc. She says Vista’s hardware demands will justify big investments AMD has made in next-generation chip designs and its $5 billion acquisition of graphics chip maker ATI. Meanwhile, Microsoft’s other software launches for businesses could prompt companies buying new servers to consider getting ones with AMD chips instead of those from Intel Corp., a decision that tech buyers are willing to mull only every so often.

Even companies that wouldn’t appear to have obvious links to Microsoft have a lot riding on Vista.

Take CoreStreet Ltd., which sells “smart cards,” authentication software and other access-control services. In the past, to make sure its programs worked on PCs, CoreStreet had to work around some idiosyncratic programming particulars in Windows. But now CoreStreet’s job is getting a lot easier, because the revamped Vista includes much better support for third-party authentication services, said John McGeachie, CoreStreet’s vice president of engineering.

Another set of Vista ripple effects comes from new features in the operating system that other companies charge for. For example, higher-end versions of Vista include a free encryption service that can cloak the entire contents of a disk drive from unauthorized eyes.

This is a familiar pattern at Microsoft, which has used its domination of the desktop to introduce everyday computer users to more and more computing innovations (the generous interpretation) or to put rivals on the ropes (the antitrust cases’ interpretation).

But at PGP Corp., a seller of encryption software, the free encryption in Vista is a blessing, according to Jon Callas, PGP’s chief technology officer. He says Vista’s encryption product will raise awareness of the technology, which PGP can capitalize on with its more comprehensive, flexible program.

“When Microsoft starts moving into our territory,” Callas said, “it can create healthy competition.”