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Microsoft is banking on Windows 7 success

SUNDAY, JUNE 28, 2009

Microsoft (Nasdaq: MSFT) plans to replace the Vista operating system with Windows 7 in October. In its initial release, Vista was a resource hog and less reliable than Windows XP. As Windows 7 steps into the fray, Microsoft is facing entirely new challenges, such as strong competitors and the rise of the netbook system that places new demands on the operating system.

Laptops are getting smaller and less impressive, while smartphones only get more powerful. The convergence of those two trends is putting new operating systems from Microsoft competitors on netbooks. And now even mobile service providers such as AT&T and Verizon are selling netbooks.

Nonetheless, Microsoft looks prepared for these challenges. Windows 7 was designed with the red-hot netbook market in mind, so it’s a fair fight. And both corporate and retail customers may jump at the chance to get out of the XP-versus-Vista dilemma when October comes. Unless 7 turns out to be another disaster – which is unlikely – it looks like Microsoft is going to ring up a lot of fresh operating-system sales this fall. And isn’t that what the company is all about, anyway?

It’s back to the basics for Microsoft, and that may make investors like both the company and the stock again. (Microsoft is a Motley Fool Inside Value recommendation.)

Ask the Fool

Q: Is it a good time to invest in airlines? – B.B., Sacramento, Calif.

A: Some have suggested it’s never a good time. Superinvestor Warren Buffett, for example, has said that “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

The airline industry has to deal with challenges such as volatile fuel costs, fare wars, expensive equipment, union negotiations, complicated scheduling logistics and costly empty seats. Southwest Airlines has been a rare success in the industry – but even its 10-year average annual stock return is negative.

My dumbest investment

I have four kids, all close in age, and huge expected college expenses. I saw that coming and saved like crazy. I built a diversified, aggressive portfolio. Didn’t go on ski trips or fancy vacations, didn’t get cars for the kids. But … I also didn’t move a single centavo to safer investments when it got close to college time. Oh, I knew you Fools said I needed to do that, but I needed more money to reach my goal. I’d figured I needed about $280,000 to get the kids through an eight-year span, and I’d accumulated about $225,000. But over the last 18 months, I lost close to $135,000. And I need it now. All sad tales need a moral, and I’ve got two: (1) Bears make money, bulls make money, and pigs get slaughtered. (2) When you’re a few years away from needing your money, shift it into safer investments! There you go. That’s my big dumb move. I hope someone reads it and learns. – S.J., online

The Fool responds: We can’t add much more to that. You learned the lessons well.


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