Barclays Is 'Resetting Expectations' At Microsoft

In a report published Friday, Barclays analyst Raimo Lenschow revised his estimates on Microsoft Corp MSFT following Intel Corporation's INTC warning that it expects to record lower revenue due to lower demand for its products. "Specifically, Intel noted lower-than-expected activity from the Windows XP refresh cycle in small and medium sized businesses and tougher macroeconomic and currency conditions, particularly in Europe," Lenschow wrote. "Interestingly, Microsoft noted during its last earnings announcement that it expects PC activity to return to levels similar to those seen prior to the XP refresh cycle, and Intel's announcement yesterday morning suggests that the refresh cycle has officially ended." Lenschow added that Microsoft is facing a "tougher set-up" in the second half of 2015 given data points around lower PC unit volumes, increased macro pressures in Europe and parts of Asia. The analyst also cited "meaningful" foreign exchange movements in the Euro and the Japanese Yen that results in a lowered earnings outlook for fiscal 2015 and 2016. Lenschow now expects Microsoft to earn $2.39 per share in fiscal 2015, compared to a previous estimate of $2.50 per share. The analyst also slashed his fiscal 2016 earnings per share expectations to $2.85 from a previous $2.96. However, the analyst concluded that the company's broader transition to the Cloud is "compelling" from an operational and financial standpoint. As such, shares remain Overweight rated with a price target reduced to $49 from a previous $50.