Microsoft sees Windows Vista growth phase underway

By Daisuke Wakabayashi

SEATTLE (Reuters) - Microsoft Corp's Windows Vista is starting to see mass adoption from businesses nearly a year after it was released, the company said while predicting a strong first holiday season for the product.

"We feel like we are starting to hit our stride not only in demand, but in deployment in business," Kevin Johnson, president of Microsoft's platform and services group, said in an interview.

Microsoft delivered quarterly results last week that eclipsed Wall Street's most bullish forecasts, helped in part by strong demand for Vista, the latest upgrade to its flagship Windows operating system. Vista was introduced in January.

Vista's success was not always a foregone conclusion. Early Vista buyers complained about the lack of compatibility with existing devices and software programs.

Microsoft also buckled to PC manufacturer demands that the company delay the scheduled transition to Vista and extend sales of its previous Windows operating system, Windows XP, for another five months because some customers preferred XP.

In a note to clients on Wednesday, Bernstein Research analyst Charles Di Bona said he thinks Vista's upgrade cycle is "underappreciated" and expects growth at the Windows business to be stronger than market expectations.

Di Bona forecasts Windows revenue to grow by 15 percent in this fiscal year ending in June versus Microsoft's own estimate of an increase of 12 percent to 13 percent. Each percentage point of growth represents about $150 million in revenue and roughly $110 million in operating profit, based on previous results.

Windows runs on more than 90 percent of the world's computers and Microsoft makes about 75 cents in profit for every dollar in Windows sales. The Windows client business generated $15 billion in revenue is fiscal 2007.