Microsoft to end support for older operating system in January, but change isn\u2019t expected to bring a sudden windfall like XP\u2019s death.<\/p>\n\n\n\n
When Microsoft Corp. stopped supporting its Windows XP operating system, the rush to replace aging machines that relied on the older software led to a huge boost to the company\u2019s earnings.<\/p>\n\n\n\n
For that reason, investors have likely been looking forward to the end of Windows 7 \u2014 which arrives in January \u2014 for years, as it was the next successful version of the operating system, with the much-panned Vista arriving in between XP and Windows 7. Even as Windows 10 was making its debut, analysts were looking forward to a Microsoft windfall upon the death of Windows 7.<\/p>\n\n\n\n
While it does seem that a refresh is taking place ahead of the official end of support for Windows 7, though, it appears more steady and spread out than previous cycles. IDC and Gartner have noted strong PC sales this year as businesses prepare for life without Windows 7, and analysts are suggesting that the windfall will be spread over multiple quarters or even years.<\/p>\n\n\n\n
\u201cMany investors have been calling for a significant fall-off in OEM revenue for many years now, but we would remind investors that this line item has grown anywhere from 5% to 8% over the past three fiscal years, with quite robust growth in the past two quarters. We believe that the main driver of growth here has stemmed from end-of-life Win 2007 support,\u201d Instinet analysts wrote in a recent note, while suggesting that Microsoft\u2019s move toward long-term contracts instead of bulk hardware sales is the reason for the change.<\/p>\n\n\n\n
\u201cWe expect upside from migration to Win 10 to continue for several quarters, and industry conversations suggest more multi-year contracts to come,\u201d they wrote in previewing Microsoft\u2019s MSFT, +0.74% fiscal first-quarter earnings, which are expected to be released Wednesday afternoon.<\/p>\n\n\n\n
Windows 7 was also not a huge hit immediately upon release, after the failure of Vista and amid the emergence of Apple Inc. AAPL, +1.73% as a stronger competitor. Windows 10 was offered as a free upgrade to some users of earlier operating-system versions, however, which meant a stronger early transition to the newer software.<\/p>\n\n\n\n
\u201cCompared to the Windows XP end of support, management is expecting a more muted impact from Windows 7 end of support given the faster initial Win10 upgrade cycle,\u201d Morgan Stanley analysts, who have an overweight rating on the stock and call it their \u201ctop pick\u201d in software, noted last week.<\/p>\n\n\n\n
While the windfall from Windows 7\u2019s death won\u2019t be as large in concentration as Windows XP, that also means that there won\u2019t be as much of a drop-off in future quarters. Morgan Stanley estimates that OEM growth in Microsoft\u2019s traditional PC segment \u2014 known as \u201cMore Personal Computing\u201d \u2014 will be about 5% in the back half of 2020.<\/p>\n\n\n\n
\u201cThis dip is considerably less than what we saw after the Windows XP end of support, but the growth that we have been seeing leading up to that date has not been as extreme either,\u201d they wrote.<\/p>\n\n\n\n
What to expect<\/p>\n\n\n\n
Earnings: Analysts on average expect Microsoft to report earnings of $1.24 a share, according to FactSet, up from $1.14 a share in the fiscal first quarter a year ago. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $1.31 a share.<\/p>\n\n\n\n
Revenue: Microsoft is expected to report revenue of $32.15 billion, according to a FactSet survey of 32 analysts covering Microsoft, up from $29.08 billion a year ago. Estimize contributors on average expect $32.62 billion.<\/p>\n\n\n\n
Microsoft\u2019s \u201cProductivity and Business Processes\u201d segment, which is mostly cloud software such as Office as well as LinkedIn, is expected to contribute $10.88 billion; \u201cIntelligent Cloud,\u201d which houses Azure as well as server sales and some other businesses, is expected to report revenue of $10.42 billion; and the More Personal Computing group is projected to collect sales of $10.9 billion.<\/p>\n\n\n\n
Stock movement: Microsoft stock has gained 36.3% so far in 2019 and 1.3% in the past quarter through Monday, as the S&P 500 index has gained 19.9% and 0.5% respectively, giving Microsoft a market capitalization of $1.065 trillion.<\/p>\n\n\n\n
What analysts are saying<\/p>\n\n\n\n
Analysts continue to be impressed with Microsoft\u2019s performance, though perhaps a bit bored by the metronome-like qualities of the company\u2019s continued success. That was acutely summed up by the one-word title of BMO Capital Markets analyst Keith Bachman\u2019s earnings preview note: \u201cSteady.\u201d<\/p>\n\n\n\n
The themes did appear similar to expectations over the past couple of years from Redmond, Wash., with calls for more and larger Azure cloud-computing deals, continued success for LinkedIn, and optimism among employees and others in the Microsoft ecosystem.<\/p>\n\n\n\n
In a quarterly survey of Microsoft partners, JP Morgan analysts wrote that a contact thinks Microsoft signed an Azure deal \u201cwith a large American Media & Entertainment company\u201d that was \u201csimilar in size\u201d to the record cloud contract with AT&T Inc. Beyond that nugget, the analysts reported that partner was more optimistic about Microsoft\u2019s future than they had previously tracked.<\/p>\n\n\n\n
\u201cPartners\u2019 opinion on whether Microsoft is \u2018Gaining Momentum\/Showing Better Technology Vision\u2019 or not came it an at all-time high by a significant amount,\u201d wrote analysts that have an overweight rating and $169 price target on Microsoft stock. \u201cNotably, not a single partner sees Microsoft losing momentum or degrading in vision.\u201d<\/p>\n\n\n\n
Cowen analysts, who have an outperform rating and $155 price target, concurred on the chance for larger contracts in the near future.<\/p>\n\n\n\n
\u201cBased on our checks, overall spending on Public Cloud remains strong, while Azure continues to gain share and has shown no signs of slowing down. Furthermore, we believe the pipeline of multimillion-dollar commercial cloud agreements continues to build, with many expected to close by 2019 calendar year-end (MSFT\u2019s F2Q20), which could drive upside to current Street expectations for F2Q20.\u201d<\/p>\n\n\n\n
Instinet analysts explained that Microsoft\u2019s focus on larger companies instead of startups is likely what will help the company continue to grow its cloud business even if startups run into trouble amid a perceived slowdown in the market for initial public offerings.<\/p>\n\n\n\n
\u201cIn the event of a slowdown in spending in the startup world, we see Microsoft as the most insulated of cloud providers given the bulk of their customer base is large enterprise and could potentially see acceleration in workload migration as agility and cost reductions become a priority,\u201d they wrote, while maintaining a buy rating and $161 price target.<\/p>\n\n\n\n
The one concern seemed to be if Microsoft\u2019s stock could continue its meteoric rise, even if financial performance continues to improve. Stifel analysts wrote that they \u201cexpect near-term stock gains to be more incremental given the sheer size of the company,\u201d and Evercore analysts suggested that \u201cinvestors may need to take a long-term view on Microsoft as a lot of good news is baked in at current levels.\u201d Stifel has a buy rating and $155 price target on the stock, while Evercore calls it an outperform with a $160 target.<\/p>\n\n\n\n
No analysts consider Microsoft the equivalent of a sell, according to FactSet, with 30 calling it the equivalent of a buy and two calling the stock a hold. The average price target as of Monday afternoon was $158.54, 14.5% higher than Microsoft\u2019s closing price.<\/p>\n","protected":false},"excerpt":{"rendered":"
Microsoft to end support for older operating system in January, but change isn\u2019t expected to bring a sudden windfall like XP\u2019s death. When Microsoft Corp. stopped supporting its Windows XP operating system, the rush to replace aging machines that relied on the older software led to a huge boost to the company\u2019s earnings. For that … Continue reading “Microsoft earnings: The death of Windows 7 is almost here”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[165],"class_list":["post-162","post","type-post","status-publish","format-standard","hentry","category-systems-and-procedures","tag-windows-7"],"_links":{"self":[{"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/posts\/162","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/comments?post=162"}],"version-history":[{"count":1,"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/posts\/162\/revisions"}],"predecessor-version":[{"id":163,"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/posts\/162\/revisions\/163"}],"wp:attachment":[{"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/media?parent=162"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/categories?post=162"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tech-battery.com\/batteriesblog\/wp-json\/wp\/v2\/tags?post=162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}