Microsoft (MSFT): March Quarter Trader Preview

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Microsoft  (MSFT):  March Quarter Trader Preview
Rating  UNDERPERFORM Price Target $38.00 Price $42.99
Key Takeaway Microsoft reports 3QFY15 (March) results after the close. Consensus estimates appear modestly conservative relative to historical seasonality, but June expectations may be aggressive. We see potential risk to the remainder of CY15 due to continued weak PC demand. Conference call details. MSFT reports 3QFY15 (March) results today after the close. The company will host a conference call at 5:30 p.m. ET. The dial-in is 877-407-0666; no passcode required. Dampened March expectations. Consensus estimates call for a -17.3% sequential revenue decline (on an organic, constant currency basis) for the March quarter compared to the -15.0% average seasonal decline over the past five years and the -15.7% average seasonal decline over the past three years. We assume consensus reflects some conservatism related to the Windows business, which faces well-telegraphed headwinds from the XP replacement cycle. But June guidance at risk. Consensus estimates for June revenues call for +8.7% q/q revenue growth (on an organic, constant currency basis) compared to five-year and three-year average seasonality of 6.0% and 4.8%, respectively. We expect the incremental headwinds related to the tailwinds a year ago caused by XP support expiration to persist for at least the next 2 quarters. Potential 2H CY15 risk from continued weak PC demand. We note that Intel (INTC, $32.70, Buy) recently reduced its 2015 PC unit growth outlook to a mid-single digit percentage decline (versus flat previously) and that Gartner similarly reduced estimates earlier this month to -2.4% from +1.1%.