With each iteration of an operating system from Microsoft there are great expectations from the supply chain to upsell technologies. By the end of an operating system cycle, prices have plummeted and margins have subsided to the point where vendors are pinched to support the next semiconductor-fueled technology round. As we look at the key components of PCs, the question is where Vista will drive benefits to the supply chain.

The most obvious areas of benefit will be in RAM, video processors/cards and in flat-panel screens. Vista is expected to demand twice the RAM usually purchased for Windows XP machines. With today's RAM glut there is not expected to be a shortage. But price points could be maintained. The improved video capabilities of Vista will demand higher-end capabilities. While the native graphics of Intel platform offerings will suffice for Vista Aero, higher-end graphics will especially appeal to consumers, who are expected to precede the business market hardware purchases and deployment. The improved graphics capability of Vista will also demand widescreen high-resolution screens. On notebooks, a greater focus on networking will bring forth increased demand for wide-area wireless, despite Gartner's cautions against integrating such technologies on mainstream machines due to the expected rapid change of the technologies during the next several years (see Gartner Doc G00127982). Security processors could see an impact with an emphasis on the Trusted Computing Platform, but this may not be realized until business begins buying with Vista deployment in mind.

Interestingly, we do not believe that processor requirements will be raised over the choices made today within today's generation. There is no question that next year's processors will support improved performance, but we believe that most users will buy at the same price points today. Vista does not seem to push buyers to higher limits. This will most certainly be a disappointment for Intel and AMD, especially when combined with the expected delay of mainstream enterprise migration to Vista until 2010. Consumers will drive the early Vista market through new PC purchases, and they will follow the component profile we have outlined here.

On the software side, we must point out that Vista's Gadgets will likely drive a strong market for active controls on the desktop. We believe there will be many ideas driven by this concept. Vista attempts to simplify networking, but many of its components are spread out in multiple areas in a difficult-to-understand usage model. Microsoft could have done much better, although networking is improved to some degree. Third-party communications that overlay Vista's capability, combined with service offerings, could also be an active area especially as notebook sales continue to increase as a percentage of all personal computers sold. Tablet PC hardware and software manufacturers could see increases due to the inclusion of tablet capabilities as mainstream capabilities in Vista. Training could also be a ripe area, because Vista's user interface conventions are significantly different than XP's.

Microsoft has not affected the supply chain with Vista as much as we would have expected. OEMs will hype Vista's demand for more capability, and such marketing efforts may still succeed in improving supply chain prospects. But as the technical evaluations come, inclusion of a stronger push toward video conferencing is one example of where Microsoft could have had more impact pushing bandwidth consumption and more endpoint technology. Had Vista been able to deliver a new file system, as originally promised, other supply chain benefits could have ensued. But as most know, Microsoft had to put the schedule before all other considerations.