Tags: Microsoft | faces | headwinds | MSFT

Microsoft Faces Headwinds as Demand Changes

By    |   Monday, 13 Feb 2012 07:53 AM

Microsoft (MSFT), the world’s biggest software maker, remains a blue-chip stalwart in the technology sector. But it faces headwinds as demand for traditional PC software changes.

The Windows personal computer (PC) operating system and the Office suite of application software remain the company’s bread and butter, accounting for almost 60 percent of revenue.

Those segments have suffered from the recent slump in the PC market. Shipments slid 0.2 percent globally in the fourth quarter from a year earlier, according to International Data Corp. U.S. shipments dropped 5 percent for 2011 as a whole, the biggest drop in 10 years.

Some of the decline stems from economic weakness and a shortage of hard drives from flood-ravaged Thailand. But consumers also are deserting PCs for smart phones and tablets. For now, that represents a problem for Microsoft.

The company’s next operating system, Windows 8, may help stem the decline in PC demand, which has taken place only on the consumer side.

Windows 8 will include a touch-screen interface designed for tablets and will be compatible with ARM Holdings chip technology. That will encourage tablet makers to use Windows 8 to produce devices that can compete with the Apple (AAPL) iPad tablet, based on battery life and speed.

Cloud computing


Another obstacle Microsoft faces is cloud computing, which tends to commoditize operating system software. But Microsoft's Azure offering could become one of the top software platforms for cloud computing

Microsoft’s profit registered $6.62 billion in the quarter ended Dec. 31, barely changed from $6.63 billion a year earlier. Revenue gained 5 percent at $20.89 billion.

Standard & Poor’s analyst Angelo Zino has a four-star buy rating on Microsoft shares. “Our buy recommendation is based mostly on valuation,” he writes. “The shares are trading at . . . a significant discount to the market and peers. We believe MSFT's core businesses remain solid, on healthy enterprise spending.”

The company next reports earnings April 19.

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2012-53-13
Monday, 13 Feb 2012 07:53 AM
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