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Investors consider Windows 2000 impact

The release of Windows 2000 could be considered the tech industry's equivalent of trickle-down economics, as many segments will reap the rewards.

This week's release of Windows 2000 could be considered the tech industry's equivalent of trickle-down economics, as many segments will reap the rewards.

When the new operating system reaches store shelves this week, Microsoft will not be the only company to enjoy a boost in revenues. A large cross-section of tech companies--computer makers, memory sellers, software creators and others--also are hoping to ride Microsoft's coattails to the bank.

Although Wall Street expects hardware and chip makers to benefit from Windows 2000, their customers may not fare so well. For example, one IBM executive noted that for every dollar spent on Windows 2000, a customer will likely fork over an additional $10 on more hardware, software and services to run the new operating system. And it's those added costs to customers that will drive revenue for these manufacturers.

The long-awaited, much delayed operating system for businesses finally gets its launch today. Microsoft chairman and chief software architect Bill Gates will culminate three days of keynotes with his own speech in San Francisco.

Windows 2000: The next generation Although a Windows 2000-related pop is almost guaranteed for many companies, the question is, "When will it occur and how big will it be?"

The answer depends on the type of company--software or hardware, for example--and whom you ask.

On the hardware side, "the stocks might start to react in late February or early March," said Dan Niles, an analyst with Robertson Stephens. "That's when we should start to hear from the box makers and chipmakers on whether they're seeing a pickup in sales because of Windows 2000."

But some analysts question whether these companies will gain a significant boost from the new OS.

"Investors want to believe that the (operating system) matters, but there is weak evidence that PC shares perform a little better than they otherwise would after the OS release," said Kurt King, an analyst with Banc of America Securities.

Nonetheless, computer makers, semiconductor companies, software vendors and component suppliers are all expecting some benefit from the release of Windows 2000 as corporate buyers begin upgrading their systems to the more robust system.

Compaq, Dell and IBM are expected to be the first in line to receive any upside from Windows 2000 because they are leaders in corporate desktop sales, Niles said.

Some computer makers, such as Hewlett-Packard and Gateway, already have had a jump by selling systems loaded with Windows 2000 before its official launch.

Microprocessor giant Intel and Micron Technologies, a memory chip leader, are also expected to reap some benefits. The companies are the largest players in their respective markets.

Twenty percent of corporate desktops are expected to ship with Windows 2000 by the end of the year, and that figure is expected to rise to 40 percent in 2001, Niles said.

But Windows 2000 server sales are expected to be slower, as corporate IT managers test and retest the systems before installing them, Niles added. Some analysts believe sales will not pick up until the second half of this year because the first "service pack," which is designed to fix bugs, will not be available until June.

Meanwhile, the Gartner Group recently released a report stating that 25 percent of potential customers may encounter problems when upgrading to Windows 2000, which also may slow sales.

"We don't know the pace that the architecture will be adopted," said Kevin McCarthy, an analyst with Donaldson, Lufkin & Jenrette. "My guess is a segment of the population will move quickly to adopt it while a large number will kick the tires."

Adding to the uncertainty is that history does not serve as a good guidepost.

Analysts say Windows NT 4.0, for example, is not a good barometer of what's to come with Windows 2000--formerly called Windows NT 5.0.

When Windows NT 4.0 debuted in July 1996, the semiconductor market was facing tough times, and computer makers were in the early stages of fighting the sub-$1,000 PC battle.

As a result, PC and chip stocks were struggling in a far more difficult environment than today, Niles said.