After interminable delays and heaps of skepticism, Microsoft (Nasdaq: MSFT ) finally has some numbers to prove that Windows Vista was probably worth the wait after all.
The just-released second-quarter results were down from the comparable year-ago period, but that performance comes with a massive asterisk. In a dazzling show of conservative accounting (I know, I get excited, too), $1.64 billion of orders were removed from this quarter as unearned revenue and instead are expected to kick in when Vista and Office 2007 launch. That would be next week, well within the third quarter, so there's a healthy load of preorders to boost this period.
Had Ballmer and company accounted for the early-bird orders as net sales, the second-quarter revenue would have grown an impressive 29.8% over last year, and earnings per share would have stood at $0.37, three cents above Q2 2006.
It's an impressive show of customer enthusiasm for an unproven product. If this early kick-start gains any traction, it looks as though skeptics of the potential in the Vista upgrade cycle -- me included -- will be proved wrong.
The entire industry of PC-hardware manufacturers has been hoping for a strong showing like this. Vista needs hefty hardware requirements to run well, and this is where system builders such as Hewlett-Packard (NYSE: HPQ ) and Dell (Nasdaq: DELL ) perk up and pay attention. They, in turn, will need scads of fast processors from AMD (NYSE: AMD ) and Intel (Nasdaq: INTC ) and lots of memory from the likes of Micron (NYSE: MU ) , who then might outsource some extra manufacturing to somebody like Taiwan Semiconductor (NYSE: TSM ) . What's good for Mr. Softy, then, is good for an entire sector.
Of course, great preorders don't automatically translate into sustained sales. Many of these early adopters are sure to be hardcore computing enthusiasts, and that's a rather easy sale. After that first rush, Microsoft needs to stay on the ball and convince the average Joes and Janes out there that they need to upgrade. That's a lot tougher -- I know people who still use Windows 95 and Office 97, because that's what they are comfortable with and haven't seen a need to change in years.
So this quarter was just fine, all things considered, and the next one will look great. It's in the fourth quarter and beyond that Microsoft will prove its mettle -- or peter out miserably. The proof is in the pudding, and all we have right now is an empty bowl and an IOU note.
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Fool contributor Anders Bylund is a shareholder in AMD and TSMC but holds no other position in the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure always looks great.