Intel Results Driving Microsoft's Stock?


Intel ( INTC ) produced better than expected results for the third quarter of 2010 , posting an 18% jump in revenues compared to the same quarter in the year before. Intel's earnings is a leading indicator for the PC and server market and better than expected results have allayed fears of a sharp slowdown in PC sales. We believe that this is positive news for Microsoft ( MSFT ), which depends heavily on the PC and server market growth as a bulk of its products are related to the PC and servers market.

Microsoft's main products include the Windows operating system, Microsoft Office, and Windows and SQL servers. We estimate that these products together constitute around 81% of the $28 Trefis price estimate for Microsoft's stock .

Potential upside to Microsoft's stock

According to Gartner, worldwide PC shipments were around 84 million in Q1 2010 and about 83 million in Q2 2010. Based on these figures, we estimated that the PC market will grow from 314 million in 2009 to 334 million by the end of 2010, which represents a year on year growth of around 7%.

In late August, Intel issued a warning that its third quarter results will be lower than initial guidance due to lower demand for PCs, possibly due to the cannibalization of notebook sales from Apple's ( AAPL ) iPad. However, Intel's recent earnings results suggest that the PC market could grow faster for the second half of 2010 compared with the first half. Intel management indicated during the recent earnings call that the PC industry is now shipping over 1 million PCs a day, which suggests additional upside to our global PC market forecast.

Our PC market forecast consists of separate projections for the desktop market and the notebook/netbook market. If global notebook and netbook sales were to reach 230 million by the end of 2010, instead of the 201 million that we currently forecast, there could be an upside of around 2% to Microsoft's stock.

The upside could be even greater if Microsoft is able to sell additional productivity software (e.g. MS Office) as a result. Microsoft Office is the dominant player in the productivity software market with an estimated share of around 95% as of 2009.

You can see the complete $28 Trefis Price estimate for Microsoft's stock here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , AMD , INTC , MSFT



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