JPMorgan Chase & Co (NYSE:JPM) analysts have revised their Microsoft Corporation (NASDAQ:MSFT) model to incorporate the latest changes made by Gartner towards its PC estimates and Gartner’s preliminary actual September quarter PC shipment figures, released a few days back.
PC shipments down for sixth straight quarter
Research firm Gartner has estimated that PC unit shipments for the September quarter will drop 8.6 percent year on year compared to the previous forecast of an 8.2 percent decline and its June estimates of a 4.8 percent decline.
PC shipments have come down for the sixth consecutive quarter, but the rate of drop has been slow from the previous quarter’s 10.3 percent year on year decline. For the full year, the research firm is expecting PC shipments to fall 8.4 percent, to be flat in 2014 and increase 5.1 percent in 2015.
Estimates lowered for Microsoft
Citing the forecast percentage from Gartner, JP Morgan analysts (John DiFucci, Darren Jue, Kenneth R Talanian Jr. and others) have dropped their September quarter revenue and GAAP EPS to $17.8 billion and $0.52 from $18.0 billion and $0.54. For the financial year 2014 revenue and GAAP EPS has been expected to be $80.3 billion and $2.54 from $81.0 billion and $2.59. For 2015, analysts are expecting revenue and GAAP EPS to come in at $85.1 billion and $2.90 from $85.3 billion and $2.91.
Microsoft Corporation (NASDAQ:MSFT) has been assigned a Neutral rating by JP Morgan analysts with a price target of $30 as they have noted that the core business of Windows and Office, which is 80 percent of total profits for Microsoft, is not stable and is prone to cannibalization from tablets—though the stock looks attractive from a valuation point of view.
Piracy a threat to valuation
Analysts have noted certain risks to their valuations like Windows anti-piracy efforts which could enhance the performance of Windows and fuel the overall PC market growth. Windows 8 may generate more revenue with its revamped performance. Microsoft Corporation (NASDAQ:MSFT) dominated the industry in the gaming console market with its Xbox line up. Though this does not impact revenue by and large, the high end image of the product can be a catalyst for the Window’s growth.
Piracy in products like Windows and Office (part of MBD) depend upon the worldwide PC market. In emerging economies where PC shipments are expected to be better than developed ones, a higher level of piracy can affect growth.
