Microsoft is benefiting from a strong corporate PC refresh, particularly in traditional products such as Windows 7 and servers, according to a new analyst report.
Microsoft could see its earnings rise in future quarters
thanks to a strong corporate PC refresh cycle, according to a new analyst
"We believe Microsoft has been unfairly grouped into
so-called PC tech bellwethers that are currently facing growth challenges in
the post-PC area," Yun Kim, an analyst with Gleacher & Co., wrote in a Dec.
6 research note, "in which portable devices and new form factors are displacing
Despite those challenges, the note continued, Microsoft is
taking advantage of a "strong corporate PC refresh cycle" and "overall positive
trends in the enterprise IT spending environment." Business IT spending
continues to provide Microsoft with an advantage perhaps denied some of its
"Despite slowing consumer PC demand, Microsoft was able to
post 10 percent revenue growth in its Windows business in the past quarter,
driven by the corporate PC refresh cycle," Kim wrote. "We expect the corporate
PC refresh cycle to continue to accelerate in 1H of CY11 (2HFY11) as
corporations begin to allocate budgets for Windows 7 roll-out."
Increased sales in Microsoft's Servers & Tools segment,
as well as its Xbox Kinect hands-free game controller, are also contributors to
Kim's rosy outlook: "We highlight that with continued success of its Xbox
platform, Microsoft has the ability to expand the console into an interactive
TV platform, much like Apple TV and Google TV."
Whether Microsoft can succeed with its newly launched
Windows Phone 7, however, remains a larger question-one particularly pressing
for the company, considering its need to regain market-share in the smartphone
space. "With the recent success of Google's Android in the smartphone market,"
Kim added, "we believe there is a chance that Microsoft's efforts in this
market could prove to be successful if it becomes quickly commoditized or the
low-end of the market grows fast enough and large enough."
Other analysts seem to agree that Windows 7 will help boost
corporate spending through the next several quarters.
"It looks like the Win7 inspired upgrade cycle can start in
late 2010 and run through early 2013," Katherine Egbert, an analyst with
Jefferies & Co., wrote in an October
research note. "We expect new hardware purchases to precede the software
upgrades by about 6 months."
During the recent global recession, many businesses
curtailed IT spending and made do with aging equipment. As Windows 7 approached
its October 2009 street date, analysts wondered whether businesses would use
the release to engage in a broad-based hardware and software refresh.
Indications suggest businesses are indeed in an IT-spending mood, but the true
scope probably won't be known for several quarters in the future.
In the meantime, Microsoft has been pouring millions of
dollars into the development and marketing of products such as Windows Phone 7
and Office 365, hoping to expand its market-share in areas ranging from
smartphones to cloud-based applications.
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.