THE MICROSOFT INVESTOR: Intel's Big Quarter Great For Microsoft, Too

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MSFT shares up this morning on Intel news.
Intel’s blowout quarter is driving the MSFT shares up today as the market for PCs appears to be recovering a bit ahead of expectations.  Upcoming potential catalysts include March quarter results (Windows 7).  Over the long haul, we think Microsoft is in a challenging spot, as the world moves away from PC-based computing toward cloud and mobile computing.  MSFT currently trades at 13x Enterprise Value / Trailing Twelve Months Free Cash Flow.

Intel Blows Away The Quarter; Suggesting There May Be Upside To Street PC Estimates (WSJ)
Intel blew past street estimates when it reported Q110 earnings yesterday.  Wall Street thinks this is great news for Microsoft:

  • Credit Suisse analyst Philip Winslow, CFA: “Intel results reinforce our confidence in our estimates for Microsoft, which incorporate a PC unit shipment increase of 23.2% year-over-year for the March quarter (consistent with the Credit Suisse IT Hardware team’s forecast)…We view Intel’s results as an incremental positive for Microsoft as units were slightly better than seasonal, and we remain focused on the return of corporate PC purchases, which we expect to occur in earnest during H2 2010.”
  • Barclays analyst Israel Hernandez: “Strong microprocessor shipments are an obvious positive for Microsoft given the direct attach to Windows.  Intel’s 1Q commentary suggests that unit sales were slightly better than seasonal, implying that PC units tracked to approximately 20%-25% growth year/year. This is essentially inline with our expectation. As Intel saw strength in high end notebooks and some incremental corporate demand, we believe Client revenue for Microsoft could upside our estimate by approximately $100 million – $150 million.”

Intel Isn’t The Only Chip Maker Banging The Drum; Most Are Having A Strong Year So Far (CNBC)
Taiwan Semiconductor Manufacturing Chairman Morris Chang told reporters at an event held yesterday that his company expects 22% growth in global sales this year.  This forecast is in-line with street expectations so the news should give MSFT investors further confidence in PC unit estimates for this year. 

There Is Actually An Analyst Out There That Is Excited By Monday’s Mobile Announcement (Microsoft Watch)
Jack Gold, principal analyst for J. Gold Associates, writes that “The potential win for Microsoft is huge if it can capture even a relatively small fraction of the hundreds of millions of social network users.  In fact, it could dwarf the few tens of millions potential of its [Windows Phone 7] smartphone devices. With Kin, Microsoft gets to sell a lot of services in the cloud, and not just licence the [operating system], as in [Windows Phone 7], so Kin is ultimately far more profitable than [Windows Phone 7].”  Our Response: C’mon, do you really think young hipsters are going to flock to these new phones?  Doubtful. 

Silverlight 4 Released on Thursday (Seattle PI)
“Our goal with Silverlight is to enable it everywhere, not just on the desktop but also on mobile devices and also in the living room,” Scott Guthrie, corporate vice president of the .NET Developer Platform, said during his keynote Tuesday at the DevConnections conference in Las Vegas.  Microsoft is pursuing a three-screen strategy for Silverlight.  It will be incorporated into cable set-top boxes and mobile phones and power everything from a better programming menu for the TV to games across the web, TV, and mobile.  It’s an ambitious strategy that needs all the stakeholders involved to cooperate.

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