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

January 6, 2012 at 10:14 AM

Analyst: Windows 8 wave to end MSFT “death spiral”

With Microsoft about to release new versions of its highest-margin products, the company’s stock should finally pick up later this year, according to a new report from Nomura analyst Rick Sherlund.

Sherlund said demand for PCs will “likely trough” in the first quarter, declining 11 percent. But he’s predicting sales will accelerate and post perhaps 18 percent growth by the fourth quarter, driven by “new product cycle momentum.”

“We are buyers now and are willing to endure several more quarters of poor results in order to benefit from the anticipated reversal in sentiment over the year ahead,” he wrote.

The next test version of Windows 8, coming in February, could catalyze investor sentiment, the longtime Microsoft analyst wrote:

“We are not saying that all of the PC industry’s problems will go away with Windows 8; we will still see smartphones and tablets encroaching on the PC business and Apple gain traction against Windows based PCs, but the potential for a very big upgrade cycle and so many high margin Microsoft products shipping within a few months of each other should provide some relief from the death spiral scenario that seems to have gripped the valuation of Microsoft’s stock.”

Microsoft earnings growth should be flat in the next quarter and through the fiscal year ending in June, he wrote, but earnings per share should accelerate to 20 percent growth after Windows 8 ships later in 2012.

Windows 8 should drive a new phase of innovation in the PC market which hasn’t been as creative as the phone business recently, he wrote:

“Over the last several years, innovation in the notebook space has been low and has

significantly lagged that of the developments seen in the mobile device space. We think

this trend will be reversed in fiscal (June) 2013 with Windows 8 on Ultrabook Touch

devices, stimulating a significant upgrade cycle. We forecast PCs inclusive of the tablet

market to expand 27% in 2013.”

Nomura’s semiconductor analysis group simultaneously issued a report on the effect of Windows coming to ARM mobile hardware with Windows 8. It forecast Windows on Arm devices to grow at a compound average rate of 103 percent a year from 2012 through 2015.

At last check Microsoft stock was up about 1 percent to $27.99, continuing a steady climb over the past week.

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