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Vista: Gates backs Ballmer against confused analysts

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Bill Gates has defended sales of Windows Vista after Microsoft CEO Steve Ballmer chided analysts for being "overly aggressive" on the company's effect on the PC market.

According to Ballmer there's a "disconnect between what people think is the growth of the PC market and what they think is Vista growth. People have to understand our revenue models because I think some of the revenue forecasts I've seen out there for Windows Vista in fiscal year 08 are overly aggressive."

Expressing confusion when asked if Ballmer's comments indicated Microsoft was now being cautious, Gates said Windows Vista reviews had been "fantastic" and that retailers experienced a "very nice lift" in PC sales.

Microsoft's shares dropped almost three per cent last week after chief executive Ballmer said analysts are confusing growth of the PC market with Vista growth.

To be fair to Microsoft, some had jumped on early Current Analysis data showing a 67 per cent year-on-year spike in shipments of PC sales in the first-week of Windows Vista availability. The conclusion was that Windows Vista drove retail sales.

Microsoft derives more Windows client revenue from sales of PCs than from boxed copies of the operating system. So Windows Vista uptake depends heavily on PC shipments - especially in the consumer market.

NPD Group attributed January's surge in demand to some canny stock management by retailers who choked off inventory rather than stock redundant Windows XP PCs in the pre-launch days of January. The week before Windows Vista's launch saw a 59 per cent slump in desktop sales and a 20 per cent decline in notebooks - the first such drop in two years.

But who is to blame for overblown projections? As ever, Microsoft primed the pumps. Last year the company expected 400m PCs to be running Windows Vista 24 months after launch - compared to three years before Windows XP even half that on 210m.

Speaking at the January 30 launch, it was Ballmer who drew a connection between Windows Vista and PC sales. Windows Vista would perform "double " the business of Windows XP, he boasted "The opportunity we see to drive the technology industry, to drive PC sales, to drive new value from the consumer market to the business market is huge," he said.

Ballmer's words indicate a fundamental belief at Microsoft that Windows alone is sufficient to convince consumers and businesses to upgrade. Windows chief Jim Allchin in 2001 forecast - wrongly - Windows XP would lift flagging PC sales. In the case of Windows Vista, Microsoft is gambling on the six-year hiatus between Windows will persuade users into the streets.

Comparison between sales of Windows Vista and Windows XP are tricky, as they launched at different times of the year and Windows XP was available before official launch, unlike Windows Vista. On boxed copy, early indications are Windows Vista is behind Windows XP. Sales of Windows Vista were 59 per cent down on Windows XP in the first week, NPD said.®

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