Snow Leopard Endangers Vista

Apple's new OS X could force Microsoft to dump its beleaguered operating system.

It's the end of the world as we know it, and Steve Jobs feels fine. With the U.S. Federal Reserve now predicting a recession that will last well into next year--and others predicting much worse--sales of ammunition, spam and gold coins are surging.

Oh yeah, so are sales of the Apple (nasdaq: AAPL - news - people ) chief's Macintosh computers.

Apple owned 9.5% of the U.S. PC market during the third quarter, according to tech tracker Gartner. Look at where beleaguered consumers are putting their dollars, however, and Apple's performance is even more impressive: The company grabbed 20.1% of the U.S. retail market in October, according to NPD Group. And Apple is on track to sell between 2.4 million and 2.7 million Macs for the quarter ending in December, up 13% from the year-ago period, according to Piper Jaffray (nyse: PJC - news - people ) analyst Gene Munster.

Microsoft's (nasdaq: MSFT - news - people ) Vista, meanwhile, is tottering. Operating income for Microsoft's mighty client division actually declined to $3.3 billion for the quarter ending in September from $3.4 billion during the year-ago period. Part of the problem is that businesses tend to switch to a new operating system all at once, and many are choosing to wait. General Motors (nyse: GM - news - people ) chief techie Fred Killeen has even said the auto giant may choose to skip Windows Vista and wait for Windows 7, due in 2010 or 2011.

Apple, meanwhile, is preparing to release an operating system focused on Vista user's biggest gripes: speed and stability. A slide show presented by an Apple executive at the Large Installation System Administration Conference last week seems to show that Apple's next operating system will appear in the first quarter. With Apple now selling one of every five computers at retail--and an even bigger chunk of the notebook market--could the move push Microsoft into making Windows XP more widely available?

That could be the death knell for Vista. The consumer edition got off to a rocky start when it launched in January 2007, years behind schedule. And while the PC makers who wrap their products around Microsoft's software are loathe to admit it on the record, insiders at big PC companies say corporate users are clamoring for machines running Windows XP.

Apple, meanwhile, kept chipping away, releasing the latest version of its Unix-based operating system, Leopard, that fall. Now Apple is on track to release yet another version of its operating system, Snow Leopard, even as it spends millions on ads designed to pluck consumers away from Vista.