SEATTLE Microsoft Corp's (MSFT.O) Windows operating system for powerful computer servers will continue to take market share from rivals Linux and Unix, the company's server and tools division head said on Wednesday.
The division has room for growth even in a slow U.S. economy, said Bob Muglia, senior vice president at Microsoft's server and tools business.
The launch of Windows Server 2008, an upgrade of its system for running major business computers, will help Microsoft extend a trend of taking market share from upstart Linux and long-time competitor Unix, he said.
"In the last six months, we have seen (market share gains) accelerate," Muglia said in a phone interview during a launch event for Windows Server 2008. "We do see that continuing."
According to research firm Gartner, the Windows share of global server shipments gained a percentage point to 66.8 percent in 2007 from a year earlier. Open-source Linux's share fell by a percentage point to 23.2 percent last year and Unix dropped to 6.8 percent in 2007 from 8.1 percent in 2006.
Microsoft has benefited, according to Forrester analyst Chris Voce, by improving its offering for servers used to host Web sites. Many developers had opted for a software bundle based of open-source offerings such as Linux, Apache Web server and Sun Microsystems Inc's JAVA.O MySQL database management.
Windows Server 2008, the successor to Windows Server 2003, is the headline product of an upgrade cycle at Microsoft's server and tools division, a unit that has posted revenue growth of more than 10 percent in 22 straight quarters.
Later this year, Microsoft plans to introduce the latest version of its SQL Server database software.
The $11.2 billion server and tools division accounts for more than 20 percent of Microsoft's revenue and profit and is its biggest business aside from Office and Windows.
Muglia, a 20-year Microsoft veteran who runs the division and reports to CEO Steve Ballmer, shrugged off the possible negative impact from a U.S. technology spending slowdown, saying about 60 percent of division sales come from overseas.
In markets like Russia, China and India, demand is strong, Muglia said. Furthermore, Microsoft only accounts for a fraction of the $80 billion global server and tools market, providing the company with ample growth opportunity.
"Overall, we continue to see strong growth," Muglia said.
Asked about potential clouds on the horizon, Muglia said a proliferation of Web-based services could mean corporate customers would need less server software from Microsoft or others because they would not run their own data centers.
Muglia said Microsoft is making "substantive" investments in this area and is already working on its own services that will host a customer's messaging or e-mail systems or host software that helps workers collaborate on projects.
For example, a company can have Microsoft run its e-mail systems in the software maker's data centers instead of buying its own computer systems and deploying accompanying software.
Another threat for Microsoft is virtualization technology, allowing one computer to act like many machines. By building virtualization technology into Windows Server 2008, Microsoft is making its first major effort in this fast-growing segment of the software industry, currently led by VMware Inc (VMW.N).
It will be another six months of testing before Microsoft ships its "Hyper-V" technology, which adds an extra layer of software that sits between the operating system and hardware, with Windows Server 2008.
"Did we miss the first round? Yes, we did miss the first round. There is no question about that, but it's still so early," Muglia said. "We see a world where all servers are virtualized in five to 10 years."
Virtualization is deemed a threat because it disrupts the traditional business model -- a highly successful one for Microsoft -- that marries one machine to one piece of software like an operating system. It also allows customers to buy fewer machines and deploy less software.
Analysts are not counting out Microsoft.
"In many cases, Microsoft is not the first person to the game, but when they spin the wheels and get the machinery going, they will appeal to the fat middle of the market and continue to grow from there," Forrester's Voce said.
(Editing by Braden Reddall)