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Microsoft delay may hurt retailers' holiday sales

Written by: Staff

NEW YORK, Mar 22 (Reuters) Microsoft Corp.'s decision to delay the release of its much-anticipated Vista operating system until after this year's holiday shopping season could hurt consumer electronic and office supply retailers in the fourth quarter, an analyst said on Wednesday.

Microsoft, the world's largest software maker on Tuesday said it would push back the consumer version of Vista until January 2007 from an earlier target for the second half of 2006 and pledged to ship the next version of its operating system to business customers in November.

Credit Suisse analyst Gary Balter said the delay is likely to hurt sales at stores such as Staples Inc., Office Depot Inc. and OfficeMax Inc., but that it could more greatly impact Best Buy Co.

Inc. and Circuit City Stores Inc., as they depend more on consumer spending during the holidays.

''If Microsoft gets the product out in January, that would still be in time for the new budget spending that drives many mid-to-small businesses, the core of the office supply segment,'' wrote Balter in a note to clients.

''Conversely, the office supply chains need this more as a new product driver than the consumer electronics chains,'' he said, adding that the electronics retailers' margins could get boosted if consumers delay buying low-margin computers and opt for higher-margin consumer electronics.

''Given the plethora of new and improved products that we should see this Christmas ... if there was a year to have a delay, this is it,'' Balter said. He was referring to plasma, LCD and projection televisions, next-generation DVD players and more Microsoft Xbox 360 and Sony PS3 systems.

''It is not enough to change our investment opinions, but is a negative in the tally board of pros and cons as we begin to focus on Christmas 2006,'' Balter said.

Vista is the first major overhaul of Windows since Microsoft rolled out Windows XP nearly five years ago.

Microsoft had originally been expected to release Windows Longhorn, now Vista, in 2005. The company scaled back its ambitions and pushed it out to 2006 before this latest delay.

Officials at Best Buy, Circuit City, Staples, Office Depot and OfficeMax were not immediately available to comment.


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