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Microsoft to tout Windows Server sales

The software giant plans to use a Thursday analyst meeting to tout, among other things, strong sales of its Windows Server 2003 operating system.

REDMOND, Wash.--Microsoft plans to use an analyst meeting on Thursday to tout, among other things, strong sales of its Windows Server 2003 operating system.

In the first 90 days since the operating system went on sale, the company has sold more than three times as many copies as the server version of Windows 2000 sold during its first three months, said Bob O'Brien, group product manager for Microsoft's Windows Server division.

"That's like, great...especially in this economy," O'Brien said in an interview here.

The fact that Windows 2003 outsold its predecessors is a factor of many things, including new licensing programs in which some companies have already, in essence, paid for the upgrade. Essentially the decision to upgrade is more a question of whether the software is ready for prime time, rather than a financial decision. And most customers are still in the testing phase, with plans to migrate most servers several months away, at least.

At the same time, server software sales were up significantly in the last quarter, generating $1.93 billion in revenue, up from $1.64 billion in the same quarter a year ago.

Microsoft is counting on Windows Server 2003 to spur upgrades from large companies, many of which are running the 7-year-old Windows NT 4 server OS. Analysts have predicted that a good part of Server 2003 sales will come from companies using NT 4.

The server unit is not the only unit that Microsoft is calling on to account for itself. The company is increasingly looking for each unit to be self-sufficient. Microsoft has recently appointed separate financial chiefs for each of its seven divisions and is expected to go into further detail on each of its businesses Thursday. Historically, two Microsoft products--Windows and Office--have accounted for the bulk of company profits, with other ventures, such as MSN and Windows CE, accounting for a fraction of sales and posting losses.

Yusuf Mehdi, corporate vice president of Microsoft's MSN unit, is also expected to unveil some of the features to be included in the next version of the MSN service

The company is also expected to talk a fair bit about its $49 billion cash hoard, although Chief Financial Officer John Connors has said that the company does not plan to announce a big dividend boost or cash payout at the analyst event--something some investors have been clamoring for. The company may also offer additional insight into its decision to switch from awarding employees stock options to offering actual share grants.

As for the company's server unit, O'Brien expects Server 2003 to continue to outsell its predecessors. Microsoft's NT 4 took 16 to 18 months to sell a million copies, and Windows 2000 Server took nearly a year, but O'Brien said if Windows 2003 keeps selling "on the same trajectory, we will hit that mark well before a year."

Microsoft is claiming more than 120 early customers, with new names to be added to its list, including the Universal Underwriters Group, the Austrian Ministry of the Interior and T-Systems, the IT provider for Deutsche Telekom. The company says it is taking market share from all fronts, including more than 8,000 Web sites that once ran Linux and are now powered by Windows Server 2003.

But most business is expected to come from existing Microsoft customers that are moving to newer software. O'Brien knows that companies won't be upgrading all at once. Many of those buying the software today are just dipping in their toes. By next year, more will be ready to get their feet wet, establishing plans to move a particular location or line of business over to the new operating system. As a result, part of Microsoft?s pitch is that Windows 2000 and Windows Server 2003 will get along great.

"We wanted a great coexistence experience," O'Brien said.