Microsoft is about to embark on one of the most important business gambles in its history.
The personal computer market is in the midst of a severe downturn and the software company's executives this week expressed deep gloom about the prospects for the rest of this year.
That downbeat mood was understandable. Late on Thursday, Microsoft reported the first year-on-year revenue decline in its history, the product of a severe economic downturn as the number of traditional PCs sold around the world in the first three months of this year fell by what the company estimates to be 15-17 per cent.
Yet, the company also said it was pressing ahead with a planned launch this year of the next version of the Windows operating system. Given the bad reception for its predecessor, Windows Vista, the arrival of Windows 7 is seen as vital for rebuilding long-term faith in the company's flagship software product.
The decision to go ahead in such dire conditions, as Chris Liddell, chief financial officer, conceded, is deeply counter-cyclical.
Most analysts argue that Microsoft is right to gamble on embarking on such an important product cycle in the teeth of the recession.
The company simply cannot afford another long delay like the one it had before launching Vista, says Sarah Friar, software analyst at Goldman Sachs: "It was just such a mistake to take five years and produce such a poor product cycle."
Big companies that pay an annual subscription for Windows rather than just when they buy new versions, and which now account for 20 per cent of revenue, would revolt otherwise, she adds.
The arrival of Windows 7 this year is also the only thing that is likely to get consumers back to the stores and will make the difference between whether they make their big discretionary purchase this year a fridge or a computer, says Rob Enderle, an independent technology analyst.
Like a growing number of other observers, he believes PCs with Windows 7 could start hitting the stores in September, although others expect it to take two months longer. Yet, most companies simply have no money to spend on new PCs and probably won't next year either, he adds.
Deepening Microsoft's predicament is the netbook phenomenon. The good news for Microsoft is that an early expectation that many netbooks would run on alternative operating systems has proved wrong and virtually all now come with Windows.
The bad news is that Microsoft makes little on the software.
The machines, which Ms Friar estimates could account for 20 per cent of all PC sales in the next year or so, currently run on the older Windows XP, for which Microsoft charges far less than Vista, which is too bulky to work on the devices.
The company is now preparing a low-priced "starter" edition of Windows 7 for netbooks that only allows them to run a limited number of applications simultaneously, in the hope that this will encourage many users to upgrade to a higher priced premium edition.
That strategy backfired with Vista, given the bad reception to the "Home" edition, according to Mr Enderle.
"It looks as though Microsoft is intentionally crippling the product, and typically consumers don't react well to that," he says.
The launch of Windows 7, meanwhile, will be part of a broader new product cycle over the next 12-18 months that Microsoft hopes will drag it out of its slump.
With the company virtually writing off any hopes for a recovery in demand this year and the outlook for 2010 unknown, the prospects for that next important cycle are hard to judge.
For now, that has forced the software giant to cast itself in an uncharacteristic role: that of cost-cutter. Its shares jumped by nearly 9 per cent yesterday as it promised to slice another $1bn from its operating costs in the current fiscal year.
Yet, for a company whose name was at one time a byword for the unlimited growth potential of technology, that amounts to something of a turning point.
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