Rick Sherlund, the veteran Wall Street analyst who has covered Microsoft since it went public, this morning reduced his earnings estimates for the company by 4 percent for the upcoming calendar year, saying Windows 8 isn’t getting as much support as it needs from computer makers.
The report comes as Microsoft prepares for its annual meeting of shareholders later this morning in Bellevue, Wash. Sherlund’s outlook counters the positive momentum that Microsoft sought to create yesterday as it reported 40 million Windows 8 licenses sold since the Oct. 26 launch.
Sherlund, an analyst with Nomura Equity Research, writes, “Windows 8 is off to an awkward launch, with PC vendors slow to bring out their new form factors (tablets and Ultrabook touch devices), Windows 8 has learning curve requirements and abundant bad press on the dual interfaces, and there is an ongoing substitution of tablets for PCs with Microsoft and partners not yet up to scale with Windows 8 based tablets and hybrid devices.”
He says the reduction in his estimate reflects “recent PC data points out of Asia and the presumption that traditional PC units are in secular decline and the ramp of Windows 8 needs some time.”
However, he continues to rate Microsoft shares a “buy” and notes, “We suspect that the shares of Microsoft already reflect much of the bad news. We think investors that can have a thick skin through the awkward quarter or two of the Windows 8 transition will likely see better traction ahead.”
Sherlund now expects the company to post earnings per share of $3.15 in calendar year 2013, compared with the average Wall Street estimate of $3.23. Excluding the impact of revenue deferrals from the Windows 8 launch, Sherlund’s estimate is $2.95 for 2013, up about 8.5 percent from 2012.
He writes, “Street numbers seem to be widely scattered, with a number that appear too high, and we think will need to come down unless there is strong traction for Windows 8 in the second month following its launch on October 26th.”
A report on Nov. 16 by longtime Microsoft watcher Paul Thurrott said Windows 8 sales were well below Microsoft’s internal projections, citing an anonymous source.
GeekWire will be covering Microsoft’s shareholder meeting this morning — check back for details.