“Is Microsoft’s Windows unit, likely to become the operating systems division, fighting a losing battle with falling profit margins or a cash cow that can bounce back if just a little goes right?
The answer depends on what analyst guesstimate you want to believe. Stifel Nicolaus analyst Brad Reback downgraded Microsoft shares on Tuesday based on the theory that Windows average selling prices are going to fall. As those prices fall so does Microsoft’s profitability. Analysts were spooked by Microsoft’s fiscal fourth quarter, which indicated Windows weakness.
Reback said that Microsoft will aim to boost demand for Windows 8, gain tablet share and entice corporate upgrades and drive average selling prices from about $43 today to $39 in fiscal 2015. He said:
We are increasingly more concerned that pricing pressures and elevated Windows sales and marketing expenses could be a meaningful headwind to revenue and EPS growth in coming years.
Reback noted that Microsoft’s Windows business is driven by enterprise agreements and challenged by consumers. Bottom line is that Microsoft’s enterprise side of the house can’t keep prices up forever.”
Thanks to ZDNet