Microsoft Drops as Goldman Says PC Share Falling

SEATTLE (Bloomberg News) -

Microsoft Corp. on Thursday tumbled the most in over a year after Goldman Sachs said the software maker is struggling with slack personal computer sales and its push into consumer devices has failed to gain traction.

In a note to investors Thursday, Heather Bellini, a New York- based analyst at Goldman Sachs, recommended that investors sell the stock. She downgraded the shares from a neutral rating. Since Wednesday, at least two other analysts have also reduced their ratings on shares of the world’s largest software company, based in Redmond, Wash.

Lackluster corporate demand for Microsoft’s new Windows 8 operating system helped send PC shipments plummeting 14 percent worldwide in the first quarter, according to IDC, making it the worst quarter since the researcher started tracking sales. Consumers are also increasingly opting to forgo PCs in favor of smartphones and tablets, markets where Microsoft’s offerings are selling poorly.

“The company faces critical secular challenges given the deteriorating PC demand backdrop,” Bellini wrote. Financial results will “gradually deteriorate unless Microsoft successfully repositions itself as a more meaningful participant in the new era of consumer compute.”

Microsoft fell 4.4 percent to $28.94 at the close in New York, the biggest decline since August 2011. The stock has advanced 8.3 percent this year, compared with a 12 percent gain for the Standard & Poor’s 500 Index.

Rick Sherlund, an analyst at Nomura Holdings, Inc., and Stephen Turner, an analyst at Hilliard Lyons, both downgraded Microsoft to neutral from buy.

“PCs are a mature market in the enterprise space and in gradual decline,” wrote Sherlund, who first started covering Microsoft in 1986, in a note Wednesday. “In the consumer space half the market does not need Office, so they don’t need Windows and don’t need Microsoft.”

Surface, Microsoft’s tablet computer, has also fallen short of analysts’ projections since it went on sale on Oct. 26. Microsoft had sold about 1.5 million of the devices, its first- ever computer hardware product, through the first quarter, people with knowledge of the company’s sales said last month. That missed the two million in sales that UBS AG analyst Brent Thill had predicted for the December quarter alone.

Bellini is the only analyst who recommends selling the stock among those who report their ratings on Microsoft to Bloomberg.

PC unit shipments fell to 76.3 million in the first quarter, a bigger drop than the 7.7 percent decline IDC had forecast, the researcher said yesterday. The drop was the steepest since IDC began tracking shipments in 1994.

The last time global shipments experienced a double-digit percentage decline was in the third quarter of 2001, when the market was wrecked by the Sept. 11 terrorist attacks and the technology bubble’s burst.

Gartner, Inc., another market-research firm, said PC shipments declined 11 percent in the first quarter to 79.2 million units. Quarterly global shipments fell below 80 million machines for the first time since 2009, Gartner said. IDC and Gartner both reported that PC shipments fell in the U.S., Europe and Asia.