Forecast has Office, Vista going in opposite directions

In Microsoft's fiscal first quarter of 2009, Vista sales grew sluggishly at 2 percent, while Office piles up 20 percent growth for its division

Other bellwether PC vendors also lack Microsoft's confidence. Chip maker Intel expressed an uncertain outlook during its earnings call earlier this month. While Phoenix Technologies, which supplies BIOS software to half of PCs,

on Thursday cut its forecast for laptop sales growth in half to 15 percent from 30 percent.

Microsoft admits the picture for Vista sales is bleaker for the rest of the year. It expects sales to increase just 2 percent, meaning that revenue in the last two quarters of the year might actually fall slightly from the prior year.

That is despite Microsoft's own forecast that PC shipments would grow from 8 percent to 12 percent for the year. The reason, again, is the expectation that Vista sales will be flat in developed countries and that non-Vista-using NetBooks will drive PC unit growth.

Office 2007 enjoys strong growth

Office 2007, meanwhile, appeared to continue its unbroken string of stellar growth. Revenue in the Microsoft Business Division grew 20 percent year-over-year to US$4.95 billion.

The company doesn't break out the percentage of MBD revenue that comes from Office. Microsoft has added several highly profitable products to MBD in recent years, most significantly, Exchange Server, which Rosoff estimates is almost a US$2 billion annual business.

Still, Office undoubtedly comprises the majority of MBD's revenues, Rosoff said. Those revenues are expected to grow 7 percent to 8 percent in the next quarter, and 12 percent to 13 percent for the entire year, far higher than Client (Vista's) revenues.

Microsoft Office has beaten back many threats during its long era of domination. But with the advent of credible SaaS competitors such as Google Docs, cheaper desktop competitors such as IBM Symphony or the much-improved, free OpenOffice 3.0, and the weak economy, could Office's grip on 550 million users finally be weakening? Rosoff isn't buying it.

"I've heard this argument many times over the years. But Office continues to have a real stranglehold in the corporation," Rosoff said. "In the absence of evidence to the contrary, I think it's going to stay that way."

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