Analyst bullish on Microsoft’s ‘Ultrabook Touch’ prospects

Veteran financial analyst Rick Sherlund, settling back into his role covering Microsoft, is out this morning with a new report on what he calls “the next big thing” for the Redmond company — a future lineup of touch-based Windows 8 hybrid notebook/tabet computers based on Intel’s “Ultrabook” specifications for thin, light and connected machines with extended battery life.

A slide used by Intel to define the 'Ultrabook' category.

This new “Ultrabook Touch” category won’t have a big impact during Microsoft’s current 2012 fiscal year, which began in July, write Sherlund and his team at Nomura Equity Research in their report this morning.

However, he predict a noticeable impact after that. He writes …

“We are bullish on fiscal 2013, anticipating a rich year of new products in high margin businesses including the launch of Windows 8 on a new breed of Ultrabook Touch devices which we believe will generate a compelling upgrade cycle, a new version of Office for Windows 8 code named Office 15 (with touch capabilities of the Windows Metro interface), and a significant new version of the Windows Server operating system (Windows Server 8).”

Sherlund is forecasting 11 percent revenue growth and 15 percent earnings growth for Microsoft in fiscal 2013, and strong growth in fiscal 2014 as prices for the Ultrabook Touch devices decline. That compares with his projection of 7 percent revenue growth and flat earnings for fiscal 2012.

He writes, ”We like the stock, not because of fiscal 2012, but because of the trends we see looking out to fiscal 2013 and 2014.”

Microsoft previewed Windows 8 in September. The new operating system comes with a tile-based interface and support new applications meant to make Windows tablets more competitive with the iPad but also designed to overhaul the experience on traditional PCs. Microsoft hasn’t yet said when Windows 8 will be released, but Sherlund predicts a beta at the Consumer Electronics Show in January.

Sherlund started covering Microsoft for Goldman Sachs when the Redmond company went public in the 1980s, and resurfaced at Nomura earlier this year, covering companies including Oracle and Salesforce in addition to Microsoft.

  • Jonah

    I have heard AT&T has a prototype Win 8 tablet and that they think it is gonna sell like gangbusters.

  • Bob

    MS has now been in a declining channel for ELEVEN YEARS. Incredibly, that hasn’t resulted in either a CEO or strategy change. Until it does, the most logical expectation is a continuation of that now very well established trend, particularly as the impact of losing a decade head start in mobile and tablets continues to adversely impact growth and the company’s overall competitive positioning.

    • Guest

      Yeah, back-to-back years not only performing below the market, but also losing money even after including dividends. A decade of decline. Yuck. No thanks. 

      • http://blog.hackingbangkok.com Kirkaiya

        I’m assuming that was sarcasm, lol

        And yes, it’s always amusing when people start writing off a company that just made $23 billion in *profits* in the past 12 months (as in, after-tax profits).  It’s almost *exactly* what Apples post-tax profits were for the same period.

        As for “declining channel” – eventually that might be true (speaking to the original commenter, “bob”), but not yet – number of PCs, including laptops and desktops, continues to increase every year, and has for the past 30 years or so. Notebook sales are up 13% this year over last.

        Microsoft is no longer a “growth” company, to be sure, but neither is it in terminal decline yet (although I do think they need to ditch Ballmer).

        • Bob

          My reference to “declining channel” is the stock, not the company. And it’s absolutely true. 

          Guest is also right that the stock has lost money for the last two years in a row even after dividends. As for writing the company off, I didn’t. But they’re now in a lot of trouble and expecting a change with the same team in place is unrealistic.

          Comparing Apple’s profits from last year to MS’s isn’t very instructive. What has the multi-year trend been? What will they be next year? Apple’s profit and revenue growth has far exceeded MS’s and they will crush MS’s profits by this time next year, with revenue likely to *double* MS’s.

          I agree that MS is no longer a growth company. The question is why not? The argument used to be because they were too big to grow at high rates. But Apple has shown that argument to be patently false. MS is not growing because almost all of its various expensive investments over the last decade have failed to perform, leaving the company virtually as reliant today on PC sales as it was a decade ago. Only now PC sales are weak and may never recover their former strength given the impact of smartphones and tablets, where MS has lost its decade head start and is no longer a leading contender.

          I don’t know if MS is in terminal decline or not. But it’s certainly at a tipping point. And yes, Ballmer can’t be fired too soon. He’s really done more than enough damage. But my bet is he’ll be there for years more. Which pretty much seals MS’s longer term fate.

          • NotBob

            You think Apple will be able to sustain their growth long term?  Ha ha ha ha

            You think Apple will *double* MS’s profits *next year*? Ha ha ha ha

            Thank you, I needed a good laugh.

          • DJP1

            This is a general reply to the thread, but let’s not forget that there was a company written off as dead in the late 90s, and their stock and product portfolio has since flourished.  That company is Apple, to those of you not in the know.  MSFT is no where near the stage that Apple was in back then, but the company did experience several dark years of limited R&D along with a brain drain both during and immediately post their antitrust era.  MSFT will be around for awhile, and there is solid growth still to come.

          • Bob

            If you mean their current rate of growth, no. But if you mean continue to grow at relatively high rates compared to MS, then yes.

            They’ve already done an admirable job of sustaining it for more than a decade by accomplishing three times what MS has failed to do once: completely reinvent their main source of revenue and profit.

            I said Apple will likely double MS’s *revenue* next year. But yes, that would translate into double MS’s net income as well. That’s not inconsistent with the range of analyst’s forecasts for both companies. So I’m not sure why you’re laughing? Maybe it’s just been a while since you’ve reviewed the actual numbers and respective growth rates?

  • Guest

    Really? Rick Sherlund from Goldman Sachs and Galleon the inside trader? Someone who is washed up and couldn’t make it as a real investor? 

    Has he actually try to play with one of those “Ultrabook Touch” whatever at the Microsoft store? $1600 for a piece of hardware that is poorly integrated right across the street from an Apple store is a sure way to convince a prospect. Never mind iPads, the Android Pads will eat these guys lunch.

  • Guest

    How the mighty have fallen. He’s predicting MS will book revenue of about $74 billion this year. Apple is forecast to do double that. Why is Ballmer still around?

    • http://blog.hackingbangkok.com Kirkaiya

      While I don’t particularly like Ballmer (and it’s time for him to go), it’s also true that Microsoft has better margins than Apple: about 40.5% for MSFT compared to about 31% for Apple.  I think that Microsoft has only “fallen” relative to a few competitors (or only two of them, really).  In absolute terms, Microsofts FY2011 was more profitable than FY2010 which was more profitable than FY2009.  So they’re hardly a basket case…

  • Guest

    I love the wannabe commentators on these web sites, much more entertaining than the article itself…..

  • Guest

    This guy must be on crack. MS is being disrupted on all fronts. The stock will be at $15 or less within two years.