Windows 7 May Trigger IT Upgrade Cycle After All

Despite some pundits’ arguments to the contrary, one analyst is predicting that the release of Windows 7 could trigger an upgrade bonanza after all — especially when it comes to opening the floodgates on corporate IT migration from Windows XP.

In a report titled “Raising the Roof on IT Spending. (And Another Look
at the Win7 Cycle),” Jefferies & Company analyst Katherine Egbert, forecast that as soon as eight months after its October 22 launch, corporate resistance to moving to the new operating system will likely start to dissolve.

That could cause a trickle to become a waterfall and perhaps even a flood of adoption.

“We expect the corporate upgrade cycle to begin in mid-2010,” Egbert said in her report, released to clients this week. “Corporate IT spending [is] on the rebound. And it now looks like the Windows 7 cycle is going to be bigger and quicker than most existing estimates.”

Typically, it takes IT shops anywhere from 12 to 24 months after Microsoft releases a new version of Windows to test and plan for migrations. Egbert is saying that process may be sped up this time around.

Some anecdotal evidence has been pointing towards a more positive reception for Windows 7 since early this year. That’s despite the fact that large numbers of IT shops have steadfastly held off moving from XP to Vista while they waited to see if Windows 7 would pan out.

The 70 percent solution

The Jefferies report said some 70 percent of all PCs run on XP. Additionally, many PCs and notebooks purchased in the past two years are capable of running Windows 7. Making matters more pressing, many of the PCs running XP are five or more years old — in many cases too old to upgrade to Windows 7 — so they will eventually have to be replaced.

On top of that, many software and hardware makers will likely begin to cut back or terminate support for XP by this time next year. Lack of applications compatibility and device drivers will drive much of that movement as well as Microsoft’s termination of support for the eight-year-old XP.

In April, for example, Microsoft extended downgrade rights — the ability to purchase a PC with one operating system and “downgrade” it to an older OS such as XP — until April 2010.

“It looks like the Win7 inspired upgrade cycle can start in late 2010 and run through
early 2013. We expect new hardware purchases to precede the software upgrades by about 6 months, which translates into a Win7 hardware purchasing cycle starting in mid 2010,” Egbert said.

Microsoft’s CEO Steve Ballmer has recently been promoting Windows 7 to corporate IT by boasting of lower
total cost of ownership
(TCO) over Vista and XP.

Microsoft even convinced Intel to migrate to Windows 7 internally. The same could not be said for Windows Vista after it was released.

Migrating from XP a challenge

There are still problems that IT shops — and consumers — will need to face.

“Perhaps the biggest driver of new hardware purchases related to Windows 7 will be due to the difficulty in moving thousands of PCs from XP to Windows 7 … every upgrade from XP to Win7 requires a custom install,” Egbert said.

That means that, while most users with Vista machines can simply perform an upgrade to Windows 7, upgrading a PC from XP to Windows 7 requires backing up, reformatting, and reinstalling all the applications. That is, if they will run under Windows 7 at all — as many of them will, Microsoft has said.

For those applications that won’t run, however, Microsoft has provided “XP Mode,” which Egbert characterizes as a “band-aid.”

“XP Mode requires hardware that supports desktop virtualization (among other requirements) and it requires IT to backup, patch, secure, and otherwise support the two operating systems simultaneously, negating the original intent of the migration,” she said.

“For this reason, we view XP Mode as a partial, temporary solution for those users whose application suppliers are slow to migrate.”

So what kind of numbers is Egbert predicting?

Given a three-year refresh cycle on approximately 740 million existing XP and Vista computers, that works out to about 247 million new or upgraded PCs each year on average. However, sales are not expected to be that balanced.

Egbert is forecasting 263 million PCs in the first year after Windows 7 ships, with 301 million in the second year, and 336 million in year three.

Don’t plan on much of a bump short-term, though.

“We continue not to expect Client [which includes Windows sales] to perform much better in Q1 [of fiscal 2010] than it did in Q4 [of fiscal 2009 which ended June 30], and have estimated 68 million new units in Q1 versus 65 million in Q4,” Egbert added.

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