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Early XP sales less than stellar

Despite heavy marketing, luxurious freebies and varied rebates, Windows XP appears to be trailing Windows 98 in terms of early sales.

Despite heavy marketing and lucrative rebates being offered by retailers, early results indicate that sales of Windows XP are trailing Windows 98 but running ahead of Windows Me.

Fewer than 300,000 boxed copies of the new operating system were sold in the first several days of its availability, according to preliminary figures from NPD Intelect, which has polled roughly 80 percent of its retailers and mail-order clients about XP. Although some poll respondents indicated that demand was "healthy," NPD asserts that the final tally of first-week sales will likely be 20 percent to 25 percent lower than what Microsoft saw with Windows 98.

"Unless there are earth-shattering sales (from the other 20 percent of retailers), it looks like XP will be lower than Windows 98," said Steve Koenig, senior analyst at NPD. But, he added, "given the economic situation and the twitchiness of consumer confidence, I would say that the launch was a success."

XP was officially launched Oct. 25. The consumer version sells for $99 for those upgrading from a previous version of Windows or $199 for the full version. The upgrade version of Windows XP Professional sells for $199 and the full version costs $299.

The figures paint a mixed picture for the Redmond, Wash.-based software behemoth. Although sales may be somewhat slower than was hoped, the figures could have been worse considering the economy is sagging and consumer confidence has been battered.

At last week's launch, Microsoft Chairman Bill Gates boasted that the company had booked 100,000 preorders, or twice the amount for Windows 95. XP sales also appear to be ahead of Windows Me, the OS that was released between Windows 98 and XP.

"It's still a pretty healthy showing, and it definitely beat Me," Koenig said. "It's a tough time to be out there hawking an OS."

Windows 95 and Windows 98 each sold 600,000 copies in the first month, according to PC Data, which was acquired by NPD. In the first four days, Windows Me sold 250,000 copies, according to NPD. Typically, OS sales peak in the first week and then fall off dramatically.

The Gatekeeper: Windows XP However, the XP sales figure does not include copies of the OS included on new PCs. Today more consumers upgrade their OS by buying a new computer than they did in the past. Such purchasing patterns make comparisons more difficult.

PC makers and retailers are relying on the new OS to fuel an upgrade cycle for the tech sector, which has been mired in a slump for the past year.

Still, Windows XP is an expensive endeavor for these companies. Microsoft, chipmaker Intel, PC makers and retailers are expected to spend $1 billion promoting the new OS. Several retailers are also using extravagant promotions, such as giving away free memory and/or Palm handhelds, with Windows XP purchases.

A Microsoft representative said the company had no comment on sales.

Retailers react
Despite the NPD numbers on overall sales, some individual retailers seemed pleased with the early response from consumers.

Best Buy spokesman Jim McManus said XP sales had "exceeded expectations." A Circuit City representative said sales were on target. Neither company would release specific sales figures.

Jonathan Magasanik, senior vice president of merchandising at Staples, said the chain had seen "tremendous results" through the first five days, with sales up about 50 percent over Windows 95 and 17 percent to 18 percent higher than Windows 98. see CNET Software: Windows XP Guide

He did point out that the company had about half as many stores when Windows 95 was released. But he added that on a per-store basis, the chain is still exceeding sales of both Windows 95 and Windows 98.

Bill Smith, a government electronics inspector in El Paso, Texas, said he obtained his copy of XP before the launch date by buying hardware online. A former Windows NT user, he had tried both Windows 98 and Windows Me but was ready to upgrade when he saw that XP was based on the NT kernel.

"When I saw XP was based on NT but had the functionality of Me, I decided I would be glad to switch over," he said. "I love it so far."

Others, however, said they were cautious of any first release from Microsoft because of potential glitches, which normally get fixed in subsequent updates to the OS.

Some analysts have predicted that XP may take longer than expected to catch on with consumers because more people upgrade by waiting until they buy a new computer than when Windows 95 came out.

"It's been advised everywhere that if you have a machine over two years old, just wait until you upgrade your machine," ARS analyst Toni Duboise said. "XP is much more powerful and requires much more technology than previous (operating systems). Consumers are at least going to wait and see."

Microsoft executives have acknowledged that OS sales are now more closely tied to PC purchases than in the past.

"The absolute units (of boxed copies of Windows XP) will be large, but the percentage will be lower than it was with Windows 95" because of the PC upgrade phenomenon, John Connors, Microsoft chief financial officer, said during a question-and-answer session on launch day.

Some PC makers, though, are seeing customer interest. Loading new PCs with Windows XP appears to be spurring sales at Dell, noted Prudential Securities analyst John McPeake.

But the economy looms behind all projections.

"Consumers are in a very different mood than in 1998," said Roger Kay, an analyst with IDC. "The stimulus to the fourth quarter will be mild. Consumer (confidence) is weak, and corporations are still in evaluation mode."

Staff writers Larry Dignan and Michael Kanellos contributed to this report.