With the lagging economy, the market for luxury items is weak. Consumers are choosing to forego and delay major purchases that are not critical, which seems completely rational due to the rising unemployment and bleak economic outlook. The market for personal computers are no exception to that rule, and the companies in the technology industry are feeling the same pinch being felt across the globe.
Today, Microsoft (NYSE: MSFT) took a hit in light of these circumstance. Citigroup (NYSE: C) cut their FY 2011 estimates for Microsoft by $0.05, citing weakness in the consumer PC market. The technorati are buying I-Pads, the students are buying netbooks, and overall, PC demand is down. Citigroup notes that they do not expect further weakening in the PC market, but the current level of demand is slow – basically, only replacement PC’s are being purchases. X-box sales are not expected to change significantly, though due to Sony’s launch of new game controllers for the Ps3, X-box may now be the third horse in a three horse race.
Microsoft’s success is now most closely tied to corporate refreshes. Firms have been slow to replace or upgraded computing system due to the economic lags their dealing with, so there should be pent up demand in the system. When that demand flows back in, Microsoft could see substantial gains, though that is likely two years off.
Citigroup’s price target is slightly lower at $30 (Microsoft currently trades at $24.58) and is based on Microsoft trading inline with large cap tech peers as some of the above-mentioned secular concerns are deadened, but are “not likely to entirely go away.”
