Wall St. bullish on Windows 98

Initial retail figures are good, causing analysts to revise their forecasts, but Microsoft faces dwindling interest for the upgrade.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Despite negative press generated by the perils of upgrading to Windows 98, Microsoft appears to be virtually immune to financial fallout from upgrade snags.

The software giant's stock has climbed 8 percent since Windows 98 See special report:
Cracked Windows hit stores on June 25, and Microsoft also has enjoyed unexpectedly strong retail sales, with unit sales rivaling the numbers produced by the launch of Windows 95. Already, Wall Street is revising its earnings estimates upward to account for the boomlet.

Then again, the company's stock has continued climbing right through its high-profile antitrust cases, which has included the threat of $1 million a day in fines, among other hazards.

Financial analysts are mostly dismissing upgrade glitches. "You're going to have things like that with any new software," said Rob Owens, an analyst with Pacific Crest Securities.

Microsoft's Windows Update service, which makes downloading patches easier, will negate any adverse affects, he added.

Windows sales According to market researcher PC Data, Microsoft sold more than 500,000 copies of Windows 98 during the first four days after hitting the market. The sales burst squeezed into the last four days of the software maker's fiscal fourth quarter, which ended June 30.

Some industry insiders have been surprised by the software's popularity, which Microsoft has declared is no more than only an incremental upgrade when compared to the radical overhaul of the operating system that was Windows 95. But while sales have been unexpectedly strong in the early going, Steve Shepich, an analyst with Olde Discount, said he doubts Win 98 will "blow out the quarter."

Windows 98 is expected to bring only a small uptick in fourth quarter revenue, given its ship date late in the quarter, Shepich added. Microsoft plans to announce its fourth-quarter results July 16. Analysts expect the company to post earnings of 48 cents a share, according to First Call.

Microsoft's fiscal 1999, however, is expected to generate more revenue than earlier expected because of Windows 98.

Shepich said he raised his earnings estimates by a few cents in the first and second quarters to account for Windows 98 sales. He expects Microsoft to post earnings of 52 cents in the first quarter and 54 cents in the second quarter.

"I raised my expectations for the first quarter and second quarter slightly because of Windows 98, but the delay in shipping Windows NT [version 5.0] will offset greater revenue gains," he noted. Shepich expects NT to ship during Microsoft's fiscal year 2000.

David Readerman, an analyst with NationsBanc Montgomery Securities, also recently revised his Windows 98 revenue estimate for fiscal 1999.

"We are raising our fiscal 1999 Windows 98 upgrade revenue forecast to $420 million, up from previous $370 million," Readerman wrote in his June 30 report. "We now forecast 8 million upgrade units in fiscal 1999, up from previous 7 million forecasts. This compares to Windows 95 upgrade unit shipments of 14 million in the first 12 months."

Shepich felt that sales of Windows 98 also will likely ease quicker than Windows 95 because much of its customer base does not need to upgrade their operating system. "If they have Windows 95 and IE 4.0, then they have 95 percent of the upgrade," he said.