Microsoft could keep XP if customers want it: CEO

Microsoft could re-think plans to phase out its Windows XP operating system by June 30 if customers show they want to keep it but so far they have not, Chief Executive Steve Ballmer said.

"XP will hit an end-of-life. We have announced one. If customer feedback varies we can always wake up smarter but right now we have a plan for end-of-life for new XP shipments," Ballmer told a news conference on Thursday.

Microsoft (MSFT.O: Quote, Profile, Research) has announced that it will stop licensing Windows XP to computer makers and end retail sales by June 30.

Ballmer said most retailers sold computers with Vista, the latest version of its Windows operating system, and most consumers were choosing to buy Vista.

Some consumers have complained they were unable to buy XP at retail stores, or as consumers. They say that in order to get XP they must buy their computers as small businesses.

"In the business environment, we still have customers who are buying PCs with XP" because information technology departments often have to work with old machines, Ballmer said.

Vista requires high-speed central processing units installed only in newer machines.

Ballmer was also asked whether the company would appeal against an 899 million euro ($1.42 billion) antitrust fine imposed by the Brussels-based European Commission in February.

The Ugly Side of Vista SP1 vs. XP SP3

With Windows Vista and Windows XP concomitantly available on the market, the Redmond company inherently catalyzed the comparison between the two Windows clients.

But the fact of the matter is that the benchmarks, comparisons of features, capabilities, market shares and security vulnerability measuring contests performed since Vista became available have managed to hurt Microsoft's Windows business where it counts more. In the end, the repercussions of the constant Vista RTM vs. XP SP2 which grew into the smackdown of Vista SP1 and XP SP3 have unfavorably impacted the Windows client total revenue and operating income.

On April 24, Microsoft published its financial results for the third quarter of the 2008 financial year, and the picture is bleak to say the least when it comes down to the Windows client division, including both Windows Vista SP1 and Windows XP SP3. "Client revenue decreased during the three months ended March 31, 2008, primarily reflecting revenue of approximately $1.2 billion recognized during the third quarter of the prior fiscal year upon the January 2007 release of Windows Vista to consumers," Microsoft stated.

In the quarter ended March 31, 2008, Windows client revenue amounted to just $4,025 billion, having plummeted no less than 24% compared with the similar quarter of the past year. Back at the end of March 2007, Windows client accounted for no less than $5,274 billion in revenue, which translates into a difference of $1.2 billion. Operating income dropped 26% from $4,204 billion in Q3 2007 to $3,097 billion in Q3 2008.

"Client revenue increased during the nine months ended March 31, 2008, primarily reflecting licensing of Windows Vista. During the three months ended March 31, 2008, OEM revenue decreased $1.1 billion or 25%, primarily reflecting revenue recognized during the third quarter of fiscal year 2007 related to the technology guarantee program, partially offset by a 5% increase in OEM license units," Microsoft added.

Microsoft continues to see the largest portion of Windows client revenue coming from operating system copies that ship preloaded with OEM computers. Even though machines from original equipment manufacturers saw an overall growth of just 8% to 10% worldwide, Windows OEM revenue jumped by $1.3 billion or 14%. However, Vista sales, even with the advent of Service Pack 1, failed to match those of the Vista RTM. And the fact that, as of April 21 Windows XP SP3 RTM is added to this equation, does not deliver good signals for future market performances of the Vista SP1 client.

As Windows XP Deadline Looms, OEMs Turn To Vista Downgrade Rights

Microsoft (NSDQ:MSFT) may be preparing to discontinue sales of Windows XP, but some OEMs have found a way to circumvent the software giant's June 30 deadline.

In yet another sign of the market's resistance to Windows Vista, Dell (NSDQ:Dell) Computer, Hewlett Packard (NYSE:HPQ), and Sony on Wednesday all confirmed plans to exercise the downgrade rights Microsoft offers with OEM versions of Windows Vista Business and Vista Ultimate in order to continue offering XP-equipped PCs to their customers.

Downgrade rights, which Microsoft also offers to volume licensing customers, give users the ability to roll back to the previous version of the product they're using. Downgrade rights have existed since 2001 for Windows, but many Microsoft partners say they've been seeing a recent uptick in the number of customers exercising downgrade rights to roll Vista back to XP Professional.

HP will sell PCs pre-installed with XP Professional on its business desktops, notebooks and workstations until July 30, 2009, a spokesperson for the Palo Alto, Calif.-based vendor said in an email to ChannelWeb.

"After June 30, 2008, if a customer already has the XP image and license, HP also can also install that customer's image on their Vista Business systems through our HP PC Customization Services," the spokesperson said.

Dell, Round Rock, Texas, plans to offer Windows XP Professional pre-installed on new PCs for customers that buy Vista Business or Vista Ultimate "for as long as Microsoft supports it," according to a Dell spokesperson, who declined to offer a more specific timeframe.

A Microsoft spokesperson said OEMs have been given the right to provide downgrade media for Windows XP with new Windows Vista Business and Windows Vista Ultimate PCs until January 31, 2009, which is also the cutoff date for system builders.

OEMs appear to have different approaches to dealing with the time costs of performing the downgrade from Vista to XP Professional before shipment.

Microsoft Reports Record Third-Quarter Revenue

Microsoft Corp. Today announced third-quarter revenue, operating income and diluted earnings per share of $14.45 billion, $4.41 billion and $0.47, respectively.

Operating income and earnings per share results included a charge of $1.42 billion, or $0.15 per share, for the European Commission fine. Income taxes were reduced by $0.15 per share for the resolution of a tax audit.

“Our third-quarter results demonstrate the benefit of our diversified business model,” said Chris Liddell, chief financial officer of Microsoft. “Our broad span across geographies, product categories and customer segments is a tremendous asset and supports our outlook for double-digit revenue, operating income and earnings per share growth for this fiscal year and also for fiscal year 2009.”

Entertainment and Devices revenue for the quarter grew 68% over the comparable period last year driven by robust demand for Xbox 360 consoles. Cumulative console sales surpassed 19 million during the quarter, up 74% from a year ago. Server and Tools revenue growth of 18% added to its string of consecutive double-digit revenue growth quarters, which now stands at 23.

“The breadth of our product offerings and our ability to provide solutions across a range of customer and partner needs paid off again this quarter. The third quarter also kicked off the largest enterprise platform launch in our company history, which highlights Windows Server 2008, SQL Server 2008 and Visual Studio 2008,” said Kevin Turner, chief operating officer of Microsoft. “These new products strengthen our ability to help business customers and partners save money, optimize their people, processes and technology, and position IT as a strategic asset for their businesses.”