Microsoft To Launch Windows 2000 To Systems Builders Monday

Microsoft Corp. will try to alleviate some of the pain of its smaller VARs on Jan. 24 with early availability of Windows 2000 code to systems builders and a $100 price break on a three-pack of Windows 2000, compared with the existing NT Workstation 4.0.

As part of its Windows 2000 Launch for System Builders, the company plans to make Windows 2000 available through its distribution arm to system builders on Monday--well in advance of Microsoft's Feb. 17 retail ship date, a first for the company, Microsoft executives said.

The company also will offer systems builders a major price break on a three-pack of Windows 2000 Professional, at $386 for a three-pack, distributors said. Authorized distributors currently charge about $485 for a three-pack of NT Workstation 4.0.

The price break saves systems builders about $30 per copy, sources say. Windows 2000 Server, however, will be priced at about $725, up from $659 for NT 4.0 Server, sources said.

Until now, Microsoft has never made the final Windows product available to its smaller systems builders so early or so aggressively priced, company executives said.

"We wanted to make sure they has enough time to get their systems ready for the launch," said George Peckham, group marketing manager for Microsoft's OEM System Builder program. Builders did not have access to Windows 95 code before the day of the launch in 1995 and only got the Windows 98 code in hand a week prior to the launch of that upgrade, he added.

"Windows 2000 is more aggressively priced in three-packs," said Peckham, who confirmed a price reduction but would not cite figures.

The company, in conjunction with its stable of 12 distributors, also plans to offer offer significant discounts on third-party components from companies such as 3Com Corp. and Intel Corp. on Jan 24, company executives said.

One VAR planning to take advantage of early access to Windows 2000 is TCE Company Inc., which builds PCs and delivers them overnight. "Our technicians are all Windows 2000-trained now, and we will have Windows 2000 in inventory the day after Jan. 24," said Brian Gatza, president of TCE.

Redmond, Wash.-based Microsoft, whose operating systems run on more than 98 percent of PCs worldwide, is making serious strides to convert many users from Windows 9X to Windows 2000, especially in light of the pinch it felt in the systems builder channel during the fourth quarter.

OEM revenue for Microsoft's second fiscal quarter ended Dec. 31, totaled $1.9 billion, up only 4 percent from the comparable quarter last year. Revenue jumped markedly higher in the year before to $1.8 billion in the second quarter of 1998 from $1.2 billion in the second quarter of 1997.

Alarmed by slowing sales of its systems builders, Microsoft Chief Financial Officer John Connors issued a command to his former channel troops: Fix the problem.

"The biggest slowdown was in the systems builder channel. We're seeing a slowdown in Europe and in the [United States]," said Connors. "We have to go to work on our systems builder channel and get them on a growth rate we all feel comfortable about again. It'll build gradually with low single-digit growth in [Microsoft's] third fiscal quarter [ending in March], and we should have a strong fourth quarter [ending in June]."

The company, which is basing its optimistic projections on the launch of Windows 2000 on Feb. 17, defined systems builders as those who buy 1,000 or less copies of Windows per quarter. Many of these VARs are Value-Added Providers and resellers of PC hardware and barebones systems that serve small, local businesses.

Several Wall Street analysts attribute the slowdown in the most recent quarter to a confluence of negative factors, including slowing PC demand, component shortages and corporate spending lockdowns during the second half of 1999 due to Y2K concerns. These analysts, too, paint a rosier picture and a bounce back from that depressed growth level.

"The small VARs were caught in a supply shortage. When components are short, smaller players are impacted more than large customers," said Mike Kwatinetz, an analyst at Credit Suisse First Boston in New York. "That should sort itself out as shortages ease."

But not all are convinced it is a onetime fluke. At least one industry analyst said Microsoft's system builders are feeling the heat from low-cost branded PCs such as eMachines and the Free PC era.

"With the advent of low-cost machines I think systems builders are in trouble," said Rob Enderle, vice president at Giga Information Group. "We really didn't see much of a lockdown impact on the market that they deal with, so it must have been something else, including market-saturation problems. With Compaq [Computer Corp.] also entering the hunt and Toshiba [Corp.] expanding their influence, I see a shrinking market opportunity for the white-box folks."- CRN