By Bill Rigby
SEATTLE (Reuters) - Microsoft Corp unveils the first widely available test version of Windows 8 on Wednesday, giving the public the first chance to try out the slick, new-look operating system it hopes will restore the company's fading tech supremacy.
Windows 8, as the first Microsoft operating system compatible with low-power microprocessors designed by ARM Holdings Plc, will run on tablets as well as desktops and laptops.
"The operating system has begun to be seen as largely irrelevant," said Sid Parakh, an analyst at fund firm McAdams Wright Ragen, which holds Microsoft shares. "This is the release that will have to prove its relevance all over again."
Tablets and smartphones and cloud computing have made Bill Gates' vision of "a computer on every desk and in every home" seem quaint, and Apple Inc and Google Inc and Amazon.com now set the agenda for the computing industry.
Still, all of those companies' fancy new hardware devices need basic operating software, and Microsoft is betting there is still more than a little room for Windows.
"The big increment here is that it'll be viable on the ARM platform, that there'll be a tablet form factor -- that kind of makes it a big deal," said Dan Hanson, a portfolio manager at BlackRock, which holds 5 percent of Microsoft's shares through various funds. "Microsoft correctly identified the relevance of the tablet form factor over a decade ago. This operating system may allow them to finally execute."
Windows 8 will come in two main flavors -- one that works on the traditional x86 chips made by Intel Corp for desktops and laptops, and a new version for the ARM microprocessors that have become the standard for tablets, smartphones and other portable devices.
Microsoft says it is aiming to get machines running on both the ARM and Intel platforms into the market at the same time but has not set a target date.
In both versions, Windows 8 features a completely new interface, borrowed from what Microsoft calls the "Metro" style of the current Windows Phone software. It features blocks or 'tiles' that can be moved around the screen or tapped to go straight into an application.
The tiles update in real time, so you can see if you have emails, voice messages or Facebook notifications at a glance. If PC and laptop users do not like the new format, they can revert to the old style with a click of the mouse.
The key for any operating software -- be it Apple's iOS for iPhones and iPads, Google's Android software for smartphones, or Windows -- is to attract the support of the software developers who build applications, and on that score Windows 8 is off to a decent start.
"The biggest hurdle our designers have had is trying to get inside the mood of a Metro user, where less is more," said Paul Murphy, business development manager at Aviary, which makes a photo editing tool that can be integrated into iOS and Android apps. "That was and still is a challenge, but I think now that they've been at it for a couple of months, they actually really like it. They appreciate the simplicity of the design."
Developers who have already created apps for Microsoft's Windows Phone are finding it easier to adapt to Windows 8, said Ryan Lowdermilk, who hosts a popular podcast for apps builders.
"Porting your code over, people are finding that to be pretty straightforward. But as far as finishing that last mile where some of this newer technology for Windows 8 comes into play, they are finding little hiccups and bugs here and there."
WINDOWS + OFFICE = $
The Windows 8 release has to be good, and soon, say industry experts.
"Now that the tablet market is being defined by the iPad and the (Amazon) Kindle, if they come out with a buggy first version, they won't get a second chance," said Michael Cherry, a former Microsoft engineer who now works at independent research firm Directions on Microsoft. "They can't afford to disappoint customers."
Microsoft has not put a timetable on the final release, but Windows unit head Steven Sinofsky has said new versions of Windows should be no more than three years apart, which would put a Windows 8 debut around October 2012.
The public will get its first good look at Windows 8 on Wednesday, when Sinofsky launches the "Consumer Preview" at an event in Barcelona. Everybody will be able to download a test version of Windows 8 that will run on PCs and laptops based on Intel chips. But they won't get to try out Windows 8 on an ARM tablet until later this year.
Initial buyers for Windows tablets are expected to be consumers, as most business users have not yet even moved onto Windows 7. But the long-term success of Windows 8 will depend on Microsoft's core business customers.
A Windows tablet that works seamlessly with Microsoft's Exchange email system and Office applications would be a godsend for corporate technology managers, who have been bending over backward to put their CEO's iPads -- "executive jewelry," as one analyst puts it -- onto their company's email and security systems.
Microsoft's killer punch is Office. After months of silence, Sinofsky confirmed earlier this month that the world's most popular suite of work applications, including the newest versions of Word, Excel and PowerPoint, will come installed on tablets running the ARM version of Windows. That's a big and potentially risky departure for Microsoft, which has in the past sold Office separately.
They will not be in the new "Metro" style, but they will be optimized for touch. That would give Windows tablets a unique selling point over iPads and Android tablets.
Even a wildly successful Windows 8 might be less profitable for Microsoft than its predecessors, simply because the company won't be able to charge nearly as much for software that runs a $400 tablet than it could for software running a $1,500 PC.
The Windows unit averages about $80 per PC sold now, but will likely get half that from tablets, Sanford C. Bernstein analysts estimate. Wall Street is expecting a bump in Windows sales for at least 12 months after the release, fueled by consumer demand for tablets but does not foresee a spike matching the hot-selling Windows 7.
Analysts are estimating a 12 percent jump in Microsoft's earnings per share for each of the next two fiscal years, which is better than the flat expectations for this year, marred by lackluster PC sales.
But it is not exceptional for a company that posted nearly 30 percent increases in earnings per share for the last two fiscal years. Gross profit margins, while still comparatively high, are expected to drift slightly lower.
Several analysts have recently raised their outlook for next year's earnings, helping the stock rise to a four-year high on Tuesday, partly buoyed by building interest in Windows 8.
"The next four to six quarters will be extremely important for Microsoft," said Parakh at McAdams Wright Ragen. "They have to prove they too have a competitive product, not just on traditional desktop PCs and laptops but on the tablet and even phones. And this is their chance."
(Reporting By Bill Rigby)