Microsoft Corporation (NASDAQ:MSFT)’s shares have received a major downgrade from Goldman Sachs Group, Inc. (NYSE:GS). As of the moment of this writing, the stock had fallen almost 5 percent.
In a report issued to investors this morning, analysts at Goldman Sachs Group, Inc. (NYSE:GS) said they downgraded Microsoft Corporation (NASDAQ:MSFT) to Sell from Neutral. The firm’s hardware team predicts that the company’s PC market share will decelerate and fall from 73 percent in 2012 to 65 percent this year and then 59 percent next year. As a result, Goldman Sachs Group, Inc. (NYSE:GS) has lowered its estimates and price target for shares of Microsoft Corporation (NASDAQ:MSFT) to $27 per share from $30 per share.
They note that there appears to be a lack of catalysts to help give the company’s earnings a boost. They don’t believe Microsoft has anything up its sleeve because of how recently it released Windows 8 and RT, but they have looked into some possibilities which investors might expect the tech giant to consider “to help offset fundamental headwinds.”
One thing they don’t mention however, is the expectation that Microsoft will unveil the next generation Xbox in May.
In their view, Microsoft will likely continue with its current strategy, which includes rolling out Windows 8 on more form factors through its OEM channel while continuing its partnership with Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) for the Windows Phone and leveraging the Windows ecosystem to push for greater development of applications and services.
The biggest problem they see for Microsoft Corporation (NASDAQ:MSFT) is its “poor consumer positioning,” which they believe diminishes opportunities for growth. In their view, the company’s total compute market share will continue eroding over the next two years while its financial results also deteriorate gradually.
For Microsoft’s March quarter, they’re predicting total revenue of $20.4 billion and 66 cents per share in earnings, compared to the consensus of $20.7 billion and 70 cents per share.
The analysts also considered what would make them become more positive on the company. The most important thing the company can do, in their view, is to regain share in the total compute market which includes PCs, tablets and smartphones. Unfortunately though, they point out that this involves “winning over the consumer,” and currently the bulk of Microsoft’s customers are enterprise, many of whom have yet to migrate to Windows 8.
“Microsoft needs to ensure that it does not put its future solely in the manufacturing hands of OEMs as was the case in the past, but instead walk the fine line between partner and competitor as it tries to spur innovation in the next generation of compute,” they wrote.
They said it’s possible Microsoft Corporation (NASDAQ:MSFT) could use its foothold in the enterprise sector to push market share on the Surface Pro and other Windows tablets. They could also see a Surface phone and possibly even a smart TV in the company’s future.
