Microsoft Drops on News of Windows Delay

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Mar 24, 1997, 3:00:00 AM3/24/97

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<H1><CLARI-ITEM HEADLINE>Microsoft Drops on News of Windows Delay</CLARI-ITEM></H1>
<I><B><CLARI-ITEM COPYRIGHT>Copyright 1997 by Reuters</CLARI-ITEM></B></I> / <I><CLARI-ITEM DATE>Mon, 24 Mar 1997 15:41:05 PST</CLARI-ITEM></I><P>
<P> SEATTLE (Reuter) - Software giant Microsoft Corp.'s stock
dropped more than 4 percent Monday amid indications that a
successor to the Windows 95 operating system will be delayed
until 1998.</P>
<P> The stock fell $3.875 to $90.125 and was the most active
issue on Nasdaq after widespread reports that the Windows 95
update, code-named Memphis, probably would not be released this
year as previously anticipated.</P>
<P> Industry analysts said the likely delay of the operating
system update would have little financial impact on Microsoft
but could reflect a diminishing corporate appetite for frequent
software upgrades.</P>
<P> ``For large organizations, every year and a half to two
years is too fast for new versions,'' said David Rothschild of
brokerage Piper Jaffray. ``Every three or four years is more
like it.''</P>
<P> Analysts said the delay likely stemmed from the difficulty
of integrating into the operating system the upcoming version
4.0 of Redmond, Wash.-based Microsoft's Internet Explorer
<P> Jonathan Roberts, director of Windows product management for
Microsoft, declined to project a release date for Memphis but
said computer manufacturers had been told they would not get
software code in time for holiday season retail shipments.</P>
<P> He added that it would be ``desirable'' to synchronize the
retail release of the software to coincide roughly with
shipments of new computers.</P>
<P> Roberts said developers still expected to issue the first
major beta test version to customers by June 30 but said
computer manufacturers that sell in major retail outlets
generally need final code by July to ship for the holiday
<P> The Windows 95 update, sometimes referred to as Windows 97
or Windows 9x, will include several performance-related
features, most of which are ready. But developers are still
working on the new Internet browser, which adds ``push''
technology and comes hard on the heels of version 3.0 of the
browser, a major update released in August.</P>
<P> In ``push'' technology, computer users can have customized
information sent to them over the Internet rather than having to
go out on the Net and search for it.</P>
<P> Widely publicized security flaws discovered recently in
Internet Explorer 3.0 might be part of the reason Microsoft has
decided to go slow with the operating system update, some
analysts said.</P>
<P> ``It's fair to say Internet Explorer got a fair amount of
heat for the security problem,'' said Larry Dietz of Zona
Research, an analyst at Zona Research.</P>
<P> But he also said Microsoft could be ``throttling back a
little'' because of resistance to frequent upgrades from
corporate users.</P>
<P> ``Large end-users are in no hurry to spend the dollars,''
Dietz said. ``Most end-users know there is a tremendous amount
of down time that exists any time you putter with people's
<P> Microsoft's Roberts acknowledged that many corporate users
are still making the transition to Windows 95.</P>
<P> Piper Jaffray's Rothschild said the Memphis delay would be
unlikely to affect Microsoft's earnings or revenues
significantly, particularly because the company defers much of
the income it gets from operating systems.</P>
<P> But he and other analysts noted the company's stock is still
relatively high priced compared with its expected growth.</P>
<P> ``It's an expensive stock, and whenever you get a whiff of
bad news, it's going to behave like this,'' said Mike Wallace of
UBS Securities. ``I dont think it's a big deal.''</P>
<P> Microsoft, which has slipped about 13 percent from its peak
of $103.50 in early February, was one of many high-technology
stocks that slumped Monday.</P>
<P> While the shipping date has slipped, Microsoft needs to
update the operating system soon if only because its very name
advertises the fact that Windows 95 is nearly 2 years old,
analysts said.</P>
<P> In addition, Microsoft's financial model requires it to
maintain a regular stream of upgrade revenues, said Michael
Gartenberg, research director of the Gartner Group consulting
and research firm.</P>
<P> He predicted the Memphis system would get a less
historically specific name -- perhaps Windows 2000 -- and said
Microsoft probably would increase the price for the new
operating system relative to that for Windows 95.</P>
<P> Roberts declined to comment on the naming or pricing of the
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