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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

November 13, 2008 at 11:20 AM

Analysts cutting Microsoft estimates, expecting PC demand to slow to trickle

With a dismal forecast from Intel sending tech stocks, including Microsoft, on another tumble, analysts are again cutting their estimates for the company.

Friedman Billings Ramsey researchers published a note today calling for PC unit growth — a key driver of revenue for the company’s flagship Windows business — to slow to 2 percent in the 2009 fiscal year, which ends June 30, 2009. The previous FBR estimate was 8 percent, and the new figure represents “the midpoint of our 0% to 4% growth expectation.” Microsoft’s latest guidance for PC unit growth was 8 percent to 12 percent, issued Oct. 23.

“The negative commentary from Intel last night is consistent with our recent PC checks, which indicate demand has even worsened. As such, we are lowering our estimates for MSFT based on lower client revenues.”

FBR analysts now expect FY09 client revenue of $16.5 billion, down from $17.6 billion. That translates to overall revenue of $64.5 billion, down from $65.5 billion, and earnings per share of $1.99, down from $2.05.

Despite this, FBR thinks Microsoft is a good stock to own in a downturn, expecting “outperformance relative to its peers and Nasdaq.” The company maintained its “outperform” rating on the stock and lowered its price target from $33 to $31 a share.

“During the 2001-2002 downturn, MSFT outperformed the Nasdaq in five of the eight quarters, was in line two of the eight quarters, and underperformed in one of the eight quarters. In our view, MSFT’s large deferred revenue balance, recurring nature of its revenues, and share repurchase plan strategically position the company for outperformance in the current environment.”

For the record, Microsoft today has gained back some ground from the intraday bottom of $18.74 it hit around 1 p.m. Eastern (a 10-year low) and is now trading around $20.

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