Microsoft's Clouds May Break If Vista Boots Up

With "only" 60 million copies of Windows Vista in use, the perception lingers that companies are in no rush to install Microsoft's(MSFT) new operating system.

But Vista's effect on the software giant's stock may be worth the wait.

Vista replaced XP, whose Home and Pro editions had an estimated 538 million legal copies installed by the middle of 2006, according to IDC.

But it took XP four years on the market to account for half of all operating systems installed, according to data from Gartner.

Reflecting a softer adoption rate for Vista than expected, Microsoft recently "fine-tuned" the sales ratio of Vista to XP in setting revenue projections for 2008. Microsoft now expects 78% percent of its operating systems to be the higher-priced Vista, rather than 85% expected earlier in the year, according to CFO Chris Liddell.

While Vista revenue projections weren't disclosed, the change in the Vista/XP mix lowered the revenue to be recognized during the current quarter -- an undisclosed fraction of actual Vista sales -- to $540 million for the first quarter. That's $120 million less than Microsoft had previously expected, from a 7 percentage point shift in the mix.

But that downgrade in expectations isn't worrying observers who still see opportunity in future Vista uptake.

"We continue to see the most likely opportunities around Vista" from higher-volume enterprise licensing, a shift to premium SKUs (stock-keeping units) and gains on piracy recapture, wrote Bank of American analyst Kirk Materne in a recent research note. Microsoft is an investment banking client of BofA Securities.