Nomura Trims Estimates on Microsoft (MSFT); Bad PC News Baked In, But Street Still Too High

November 28, 2012 9:03 AM EST
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Microsoft (Nasdaq: MSFT) shares are ticking lower amid Nomura Securities analyst Rick Sherlund issues comments on Windows 8 sales and the changing PC segment.

Sherlund notes that Windows 8 sales are off to an "awkward" start as PC vendors are slow to launch new form factors, the bad press around the Windows 8 learning curve and dual interfaces, and ongoing substitution of tablets for PCs.

Recent data from Asia points to a 7 percent drop in PC shipments in Q4, Sherlund notes, which is down from expectations of a flat reading previously issued. The analyst comments, "In looking at Microsoft, we have assumed essentially no growth going forward in traditional PCs (or actually down about 6% if we exclude new Ultrabooks) and the more relevant market growth of about 3-5% if we include Windows-based tablet devices." Though he thinks most customers would like an Apple (Nasdaq: AAPL) iPad, Sherlund notes that Microsoft Office has such an anchor that customers might upgrade to an Ultrabook touch or tablet/hybrid device and that FY13 might be a good upgrade

Based on checks and outlook for FY13, Sherlund is reducing his estimates on Microsoft. He largely believes that bad news is already priced-in to Microsoft shares, but notes that Street estimates still appear a little high. FY13 EPS moves from $2.93 to $2.81 and FY14 from $3.24 to $3.10. FY13 revs move from $82.97 billion down to $80.64 billion and FY13 revs from $91.05 billion to $89.22 billion.

Shares of Microsoft are down about 0.1 percent early.

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