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Microsoft Corporation (NASDAQ:MSFT)’s Windows A “Drag” On Its Business: Goldman

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Microsoft Corporation is being slowed down by its Windows business, noted Goldman Sachs analysts, who reiterated a Sell on the tech firm ahead of the earnings call next week. In a note to the clients, the analysts termed Windows as a “continued drag” and an obstacle to the growth for the tech firm.

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Not many positives

In its report, Goldman noted three points for the Windows. The analysts expect not many corporate clients to go for the Windows 10 right away, thus, denying the tech firm those corporate revenues. Further, Windows Server 2003 is nearing its end-point, suggesting Microsoft will not be coming up with the updates and patches for the product. However, the analysts note that this was never the firm’s most popular product, so not much impact will be seen on the bottom line, even if enterprises do upgrade.

  

Another negative for the firm is its Enterprise License Agreements (ELAs), a software package that it offers to the big clients, which is not very popular. Not many enterprises are planning to  renew their agreements, notes Goldman. The firm’s Microsoft Office 365, which is witnessing “strong momentum,” is not actually pushing the value of the enterprise contracts, noted the analysts.

All of those negatives, when seen alongside the weak PC market, do not portray a very bright outlook for Microsoft, at least in the short-run. Goldman expects the tech firm to post revenue of $22bn versus a consensus estimate of $22.1bn.

Success of Windows 10 vital for Microsoft

With Windows 10 coming later this month, Microsoft will be hoping to gain some of the ground it lost to rivals such as Apple. With Windows 10, the tech firm is planning to unite all the Windows-based devices from PCs to phones, so the success of the OS is vital for the firm’s current vision says CEO Satya Nadella.

As per IDC, for the quarter ended March 2015, Windows OS had a market share of 2.7% versus Android’s 78% and Apple’s 18.3%. Microsoft ranks 3rd among the global phone OS vendors with a 7.2% share (including feature phones), noted Gartner.

“With Windows 10 coming in, there is some hope in creating interest in the platform from other hardware vendors, but it may be a last attempt,” said a Gartner representative.

On Monday, Microsoft shares closed up 2.08% at $45.54, and year to date the stock is down over 3%. In the last twelve months shares are up over 8%.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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