The Microsoft Investor is a daily report from SAI. Sign up here to receive it by email.
MSFT Down With The Market
Shares of MSFT are trending down as the market sells off amidst continued economic fears. Microsoft will announce second quarter earnings after the market close on Thursday, July 22. Other catalyst include the company’s upcoming analyst day on Thursday, July 29 and upgrade cycles of Office 2010 and Windows 7. Microsoft is in a challenging spot as the world moves away from PC-based computing toward cloud and mobile computing. The stock currently trades at 13x 2010E P/E, inexpensive compared to historical trading multiples, but Microsoft’s rapid growth days are likely behind it.
Analyst Ups Microsoft Estimates On Strong Client Revenue (Barron’s)
Microsoft likely sold more than 50 million copies of Windows 7 in the June quarter, above estimates of 40 million. Pacific Crest is increasing the Client revenue assumption to $4.55 billion (from $3.86 billion) and total revenue to $15.74 billion (from $15.05 billion). Earnings per share goes to $0.53 (from $0.47). This is significantly above the street consensus of $15.23 billion and $0.46, respectively.
PC Shipment Numbers Give Confidence In Microsoft Estimates (Credit Suisse)
Philip Winslow at Credit Suisse is confident in his Microsoft PC model based on numbers released from IDC and Gartner on second quarter PC shipments. Shipments increased between 22.4% and 20.7% year over year. Despite the European debt crisis, PC results were driven by relative strength in EMEA shipments (double-digit growth). Intel’s results also echoed his conviction that the quarter is in tact. Microsoft remains his top pick with an Outperform rating and price-target of $40.
Microsoft Office Sales Sucking (Various)
NPD reported that Microsoft Office 2010 sales are much lower than its initial release of Office 2007 and only slightly improved over its Office sales earlier this year. Google Docs, however, is not playing a role in the slow adoption. Despite Ballmer’s praise for the software, Office 2010 sales will be a bit slower to ramp up than those of its predecessor. That will be at least until the PC refresh cycle really kicks in. Click to see operating profit by business division.
Microsoft Incentivizing Developers To Create For Windows 7 (Business Week)
Because the company hasn’t lost enough money on the consumer side, Microsoft is said to be paying developers to create on the Windows 7 platform. This is in part to make up for market share declines in mobile from 11% last year to 7% this year. That said, It’s likely difficult to get people to build software for an mobile operating system that doesn’t exist yet.
Kinect Not Targeting Anyone; Just Creating A New Experience (The Wall Street Journal)
Rob Matthews, General Manager of Global Marketing Communications for Xbox 360, talks shop with The Wall Street Journal about gaming and where Kinect fits into the current community. The goal is to remove the final barriers keeping a large part of the population away from interactive entertainment. It’s not necessarily targeting one group versus another.