Will corporate PC refreshes be enough protect Microsoft from the looming drop in consumer PC spending?
After solid growth in the first half of this year, the PC market is set for a slowdown, according to financial and technology analysts.
Naturally, Wall Street is concerned. Analysts from Standard & Poor, J.P. Morgan, Barclays have downgraded stock price estimates for Intel, AMD, Dell, Microsoft and other players in the PC game.
Standard & Poor analyst Jim Yin cut his rating on Microsoft from “Hold” to “Buy” and reduced his price target on the stock from $35 to $31. He was quoted in a Barron’s blog post as saying: “Inventories of some PC components such as hard disk drives have been rising, indicating to us that some PC manufacturers have already seen weaker demand. Slower economic growth will most likely delay a PC refresh cycle.”
[ For complete coverage on Microsoft’s new Windows 7 operating system — including hands-on reviews, video tutorials and advice on enterprise rollouts — see CIO.com’s Windows 7 Bible. ]
Whether or not this is overly pessimistic speculating by analysts, low order rates and high inventories at hardware makers have been documented, and both are big indicators of slow PC sales.
Most of this slowdown is the result of cash-strapped consumers who thought the economic recession would have taken a more positive turn by now. Laptop builds were down in July, as was back-to-school demand, according to analysts.
Microsoft, for its part, is taking the PC slowdown scare in stride. A blog post by veteran Microsoft watcher and ZDNet blogger Mary Jo Foley quotes Microsoft GM of Investor Relations Bill Koefoed:
“Whether or not the market’s up or down one month or another, I don’t know, there tends to be, since I’ve had this job, there tends to be a lot of chatter. There’s a lot of chatter back in kind of April, May about PC markets for the second quarter. I don’t know that I would take two guys that go visit some ODM in Taiwan as a reference on what the market looks like. I would gather a lot of information and then decide what you think that it looks like. But we feel great about our product, we feel great about the opportunity and obviously the other thing you didn’t quite ask about is the enterprise refresh. Businesses are underway, as we said last quarter, with upgrading their environment to Windows 7 and we think that it offers great productivity gains and just a better experience.”
Redmond does indeed have the enterprise on its side. The economic climate has improved just enough for corporate refreshes of Windows 7 PCs to pick up, and they are expected to keep growing throughout next year. Hefty corporate licenses for Office and Windows, which are usually double the price that consumers pay, should insulate Microsoft from the fickle world of consumers.
In a CNN story this week, Gleacher & Co. analyst Yun Kim said Microsoft is in a good position to handle a PC slowdown despite the hit its stock price has taken because of the anticipated slowdown.
“Though the consumer PC market growth is decelerating, that will be more than offset by the growth on the corporate side,” said Kim. “That makes Microsoft a well-positioned company and a good stock to hold in this environment with so much uncertainty out there.”
What do you think? Will enterprises keep Microsoft off the hook if consumer PC sales deteriorate?
Shane O’Neill is a senior writer at CIO.com. Follow him on Twitter at twitter.com/smoneill. Follow everything from CIO.com on Twitter at twitter.com/CIOonline.
