MarQ PC Shipments Worse Than Most Feared; Numbers Likely to Come Down to Our Estimates

PC sales off therefore Microsoft sales off looks like tablets and smart phones may have some effect. Aivars Lode Avantce

Microsoft
MarQ PC Shipments Worse Than Most Feared; Numbers Likely to Come Down to Our Estimates 
Preliminary MarQ PC shipment figures released last night by IDC and Gartner were worse than many expected, though in line with what we had been assuming in our MSFT model. IDC and Gartner noted that PC shipments experienced their largest y/y decline since each firm began tracking the PC market. In light of MSFT’s recent strength (up 6% over the last three trading sessions vs. a 2% gain in the S&P 500 for the period), we expect shares to be quite weak today and leading up to earnings next Thursday in reaction to these most recent PC data points.

•   PC market contracted in MarQ between 11–14% y/y. IDC estimates the PC market declined 13.9% y/y (much worse than its forecast of a 7.7% decline) while Gartner estimated the market declined 11.2% (in line with its forecast of an 11.0% decline). Although we had modeled an 11.0% decline, we believe the Street had generally been expecting a decline in the high single digits.
  
•   Consumer weakness pronounced, with Windows 8 not helping. IDC and Gartner highlighted weakness in the consumer segment, with IDC noting that the Windows 8 launch “appears to have slowed the market.” Both firms observed weakness worldwide, even in emerging markets, where consumers are increasingly choosing a tablet or smartphone as their first device. Although PC sales in emerging markets have less impact on MSFT given lower ASPs and higher piracy rates in those regions, the long-term implications of this trend are clearly worrisome.
  
•   No change to our MSFT model at this time, as we had already lowered our estimates. Our model had already assumed an 11.0% y/y decline in PC unit shipments based on Gartner’s forecast at the time (see “Updating Our Model for Gartner’s 1Q13 PC Shipment Forecast,” dated March 21, 2013). However, if we were to use IDC’s PC shipment figure in our model, our MarQ GAAP revenue and GAAP EPS would be about $235M and $0.02 lower, respectively.
  
•   Preview reminder. Recall our preview, “Software 1Q Preview: Low Expectations Should Help Against Deteriorating Fundamentals,” dated April 8, 2013, where we noted the discrepancy in our estimates compared to the consensus and the likely convergence of the two.
  
•   We continue to rate shares of MSFT Neutral.
  See page 2 for analyst certification and important disclosures.