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Microsoft's Earnings Could Be In 'Trouble' Without 'Forced Windows Upgrades'

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April 23, 2015 3:18 pm
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Microsoft's Earnings Could Be In 'Trouble' Without 'Forced Windows Upgrades'

Is Microsoft Corporation (NASDAQ: MSFT) in danger this quarter? The Windows maker failed to turn Windows 8 into the next big OS, and one expert fears that won’t change with Windows 10.

If nothing else, the third fiscal quarter could be a bumpy one.

“I think they have trouble,” Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga. “They don’t have the forced Windows upgrade cycle anymore and they have currency headwinds. The analysts don’t have high expectations for them, but this is a case where maybe the beat or a miss isn’t as important as the actual number.”

Udall said that the stock — which is currently trading in the low $40s — is “bullish versus where Microsoft’s business is.”

“Until the US dollar weakens a lot, I don’t think Microsoft’s stock works,” he added. “If the US dollar starts weakening a lot, I think the stock can start working again.”

If Microsoft was a high-growth company or offered a strong product cycle, “foreign currency issues aren’t a big issue because people still want your product,” Udall explained. In that scenario, consumers are willing to pay a higher price for the products because they really want them.

“They’re willing to buy your product over anybody else’s and price is a lesser issue,” Udall continued. “This is sort of the economic elasticity versus inelasticity argument. If you have a slower growth company and products that are not really high in demand, that’s where price competition hurts. It’s that simple.”

Related Link: Can Sony Steal Microsoft’s Thunder With Virtual Reality?

Windows 10

Udall isn’t convinced that Windows 10 is going to be a success.

“Windows 8 is not that big of a deal,” he said. “What helped Microsoft before? They said, ‘We’re no longer going to support an old OS.’ I call that the forced upgrade. They basically forced people to upgrade. I’m one of those people that was forced to upgrade.”

If Windows 10 is an actual improvement over Windows 8, Udall said that “might help a little” at retail. New PC sales are a big factor.

“How many PCs are refreshed? That’s really Windows,” Udall explained. “They could basically give the product away. People don’t really want to buy it. You don’t want to buy or use Windows. You use Windows because you have to. Or you use Windows because you want to buy an Alienware system like I did and Windows is the OS on it.”

To be clear, Udall didn’t choose Alienware because of Windows 8.

“I’m buying it because it’s really high-powered, really fast, really good value for the money,” he said. “And oh, by the way, Windows is the operating system.”

His attitude might change, however.

“If they could do something to get people excited about using the Windows operating system again, that would be great,” said Udall. “But I don’t see it coming.”

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

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