Hard slog ahead for Microsoft?

Before the launch of Windows 8 and the Surface tablet on Friday, a Barclays analyst feels the company must find a new cash cow.

By Minyanville.com Oct 22, 2012 9:41AM

Tom Grill CorbisEquity analysts are often accused of having a herd mentality, but Barclays Capital on Friday bucked the trend where the world's biggest software company is concerned. The firm's analyst Raimo Lenschow cut his price target on Microsoft (MSFT) stock by $2 to $34 while maintaining a lukewarm overall rating of "equal-weight."

Partially as a result, shares of Microsoft finished in the red Friday, closing 2.9% lower in an admittedly awful overall market.

The analyst, well regarded and historically highly ranked in industry surveys by both Institutional Investor magazine and Thompson Reuters Starmine, thus breaks with several more optimistic peers. Analysts at Citigroup, Goldman Sachs and Lenschow's ex-employer Bank of America-Merrill Lynch have all reiterated upbeat "buy" ratings -- even after Microsoft announced its quarterly profit tumbled 22%. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

For its part, Barclays is opting "to wait on the sidelines until after the Windows 8 launch next [this] week." And with fresh signs that the personal computer era is being consigned to the scrapheap, as also evidenced by last week's relatively weak results from both International Business Machines (IBM) and Intel (INTC), Microsoft must therefore find a cash cow beyond its traditional desktop-based offerings.
Indeed, amid the clash of analyst calls, all agree that much is riding on Friday's unveiling of Microsoft's flagship product. The latest version takes increasing aim at the mobile and tablet markets, being literally more touchy-feely and less dependent on the traditional mice-and-keyboards of yore. With the number of smartphones now officially reaching one billion and Internet-enabled devices migrating to the cloud at a dizzying rate, the software company's next moves are critical.

Some early signs offer encouragement, with pre-sales of Windows 8 already nearing $800 million, which represents an improvement of about 40% on its predecessor. Competition is cutthroat, however, not least from Google's (GOOG) Android and Apple (AAPL) iOS operating systems.
Meanwhile pricing for Microsoft's Surface tablet, also set to ship Friday, is in Lenschow's view, "not significantly cheaper" compared with other offerings. Especially with the likes of Amazon's (AMZN) Kindle Fire already having a substantial head start.

Shares in Microsoft, a company left for dead for a decade, showed signs of life earlier this year, rising to a multi-year peak in March. The upward run has since stalled, and the stock currently trades at a discount to most peers. For all the buzz that Bing, Skype and Xbox bring to the table, the Windows PC and Office franchises still account for roughly 60% of the tech titan's revenue. Hence, the upcoming product refresh will reveal whether the bear at Barclays, or more bullish analysts elsewhere, are right.
Will investors leap into Windows 8? The answer will go a long way to determining whether or not this venerable tech giant has jumped the shark.

More from Minyanville

Oct 22, 2012 11:47AM
Wow, these guys really are eating too much Appe sauce or think everybody can do their job with a $229 Android cranny and nooky. What happened to the real IT and technology analysts? Did they get replaced by consumer technophiles or just retire with the rest of the boomers. Windows 8 is all about OS convergence and having your notebook and tablet too if you want it that way. Windows 8 preorders at $800m or 40% more than Windows 7. A 1,000 Windows 8 notebooks, hybrids and tablets in the pipeline with screens from 4-72" and this guy doesn't see the picture. Sorry but more anti-MS hogwash.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
267 rated 2
455 rated 3
612 rated 4
682 rated 5
695 rated 6
632 rated 7
472 rated 8
279 rated 9
147 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.