Microsoft product delays take a toll

MS is looking to the future with its latest OS. But Win2K SP1, Datacentre, server apps and its next-generation tool suite are all missing in action
Written by Mary Jo Foley, Senior Contributing Editor

It has taken a while, but the myriad product delays -- across nearly all of Microsoft's product groups -- have finally caught up with the company. Microsoft announced its fourth-quarter earnings on Tuesday, posting net income of $2.41bn, or 44 cents per share. The results indicated less-than-stellar growth from Microsoft's two main revenue sources: Windows and Office.

And the picture for the first quarter of 2001 doesn't look much brighter. Microsoft officials cast most of the blame on ongoing business PC sluggishness, as well as on a weak resources for systems builders. Only begrudgingly did the company concede that relatively cautious Windows 2000 deployments -- coupled with delays in its next-generation server applications and tools -- were taking their toll.

"Windows 2000 isn't a consumer product and thus will have a longer deployment cycle," Microsoft chief financial officer John Connors told the news media and analysts participating in Microsoft's Q4 earnings call.

That's a far cry from Microsoft's position a month ago, when it trumpeted the fact that it had sold 3 million copies of Windows 2000 since its introduction 17 February.

Win2K SP1: A no-show so far this week Financial analysts participating in Microsoft's earnings call queried company officials on the whereabouts of Windows 2000 Service Pack 1, Datacentre Server 2000 and the 2000 generation of server applications that Microsoft is developing.

Connors told them that SP1 -- the first collection of fixes and patches that Microsoft is readying for Windows 2000 -- would be available sometime "this summer". SP1 is of keen interest to many of Microsoft's partners and customers, as many seemingly heeded market analysts' advice to wait until Microsoft issued its first or second update to Windows 2000 before upgrading.

Just last week, Microsoft told beta testers it planned to release SP1 this week. One tester on the SP1 beta, who declined to be named, said he thought Microsoft still could make good on that promise.

Connors declined to be more specific on availability of the service pack, which will not be available to retail customers. Microsoft is expected to slipstream the update into future releases of Windows 2000 and make it available for download to existing Windows 2000 customers.

Meanwhile, Datacentre Server 2000, Microsoft's high-end Windows 2000 family member, only recently entered Beta 2. In February, Microsoft told company watchers that Datacentre would ship 90 to 120 days after Windows 2000, meaning by June. Microsoft is now hoping to ship the product to OEMs by late summer, and commercially before year-end.

While Microsoft claims there are more than 10,000 applications that currently run on Windows 2000 Professional, Server and Advanced Server, Microsoft's own Windows 2000-optimised applications remain largely missing in action.

On the server applications side, Microsoft has a lot on its plate, with more than half a dozen new Windows 2000 server applications in alpha or beta. Simultaneously, the company has been plagued with server-app delays.

Last week, Microsoft acknowledged that Exchange Server 2000 is running behind schedule and will not go gold until this autumn, several months later than expected. SQL Server 2000, too, isn't going to be available commercially until this fall, even if Microsoft sends the product to manufacturing in the next month or so, as it is hoping.

On Tuesday's analyst call, Microsoft told market watchers to expect Windows 2000 growth to be in the "low double digits" in the fiscal, growing to 20 percent-plus in the second quarter, once sales kick in for the 2000-generation server applications.

As if all these problems weren't enough, Microsoft's productivity applications and developer tools group had its share of problems in the fourth quarter of 2000. Revenue for the group fell 9.9 percent, when compared to the fourth quarter last year, going from $2.64bn from $2.93bn.

Microsoft officials attributed the downturn to the lack of a new product launch, like the Office 2000 launch, which buoyed the company a year ago.

But delay-related difficulties are at work here, as well. Microsoft is running more than a year late with its next version of its Visual Studio tool suite. A beta of Visual Studio .Net (aka Visual Studio 7) isn't due out until later this year, with final commercial availability set for the first half of 2001. And Office 10, the next release of Microsoft's Office desktop suite for Windows, was expected by developers to go to beta this month.

Testers said they have not been updated on when to expect the first beta. Some are speculating Microsoft has opted to retool Office 10 to fit into its .Net vision, the way it has rearchitected a good part of Visual Studio.

Is there any silver lining? Microsoft's financial top brass is famous for offering market watchers cautious guidance, but Tuesday's call went beyond the norm.

Somewhat incongruously, chief financial officer Connors summarised his remarks by telling analysts: "We feel very, very good entering fiscal 2001."

Connors pointed to some emerging parts of Microsoft's business as reasons for his optimism. He talked up the company's emerging mobile and wireless, entertainment (think Xbox), bCentral portal and WebTV offerings as potential bright spots. He also talked up Microsoft's second quarter of fiscal year 2001 as the time when all its hard work on Windows 2000 and its associated applications will finally pay off.

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