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
.