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Brier Dudley's blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

September 12, 2011 at 1:27 PM

Climate change for Microsoft, Windows 8?

Maybe I’ve had too much sun or some funky shellfish, but I’m having strange and unfamiliar visions.

It’s a little hazy, but I’m seeing glimpses of analysts and others warming up to Microsoft again.

Microsoft’s stock price doesn’t show it yet.

But there are other signs that sentiment toward the software giant is finally shifting back into positive territory.

This puts more pressure on Microsoft to deliver at its big conference in Anaheim, Calif., this week — where it’s presenting Windows 8 to developers and analysts — and over the next year, until it ships the new software.

The next few days are Microsoft’s big opportunity to nurse this trend along, by showing how Windows 8 will address the iPad challenge.

It’s also the company’s chance to show progress on other fronts where it’s been lagging, including mobile phones and cloud services.

Early peeks at Windows 8 are encouraging, giving some confidence that it will help revive the PC industry’s growth.

The plan is for PC makers to use the new operating system to produce ultralight, touch-controlled mobile computers that feel as snappy, accessible and convenient as an iPad, with the flexibility and capabilities of Windows.

If Microsoft pulls this off, the line between Web tablets and PCs will blur. The range of Windows 8 systems should include decent options for people who want a tablet-style computer, a Mac-like touch-screen desktop or a traditional PC.

Gartner, a research firm that’s been saying iPads are cannibalizing PC sales, last week predicted this shift is coming. It said computer sales should resume growing in late 2012 after “economies stabilize and new mobile PC form factors enter the market.”

For now, though, the PC market is a confusing jumble, it said.

Simultaneously, Nomura analyst Rick Sherlund released an exhaustive report that predicts a Microsoft rebound and “healthy Windows 8 upgrade cycle” but not until later next year.

Other analysts I talked to sense a warming toward Microsoft.

Windows 8 is a big reason. But the company’s also getting second looks because its stock is so low relative to its sales, and nervous investors are looking for stability.

“In markets like this, Microsoft look even more appealing — it’s defensive and they’ve got such a low valuation already,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland.

Barnicle said Windows 8 is “something for people to be a little more focused on and positive about.”

But he hasn’t yet upgraded his “neutral” rating on MSFT.

Sid Parakh, research vice president at Seattle’s McAdams Wright Ragen, is also getting glimpses of a new attitude toward Microsoft.

Parakh said the stock hasn’t been that bad lately. It outperformed the S&P 500 over the last six months — staying flat while the S&P fell about 13 percent, he said.

Neither owns Microsoft stock.

I wonder if Microsoft’s also benefiting from Apple’s leadership changes and Google’s growing antitrust and patent troubles.

In Anaheim, analysts will be pressing the company to clarify what’s happening to the PC business and the status of online efforts such as its Office 365 products, Parakh said.

“You think about the areas where they’ve really had issues — one is clearly the tablet side,” he said. “There’s still a lot of uncertainty around the cloud, mobile they’ve been far behind and search in general has been a problem.”

Now, “everything they have to offer today is pretty competitive,” Parakh said.

This doesn’t mean Microsoft’s stock will jump back into the $30s right away.

There’s a generation of computer users conditioned to think Microsoft is yesterday’s news, no matter what. Those biases aren’t going away anytime soon.

Microsoft also has to show that it can follow through with all the promises it makes this week, of great things to come in 2012.

Until then, you’ll probably have to squint to see the tide turning back toward Redmond.

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