Financial analysts at Goldman Sachs have cut Microsoft’s rating down to ‘neutral’, citing its struggles in the mobile, virtualisation and PC market as the cause.
The analysts produce a Buy List for American stocks and have downgraded Microsoft, giving it a price of $28 as opposed to the $32 it recently enjoyed.
According to Goldman Sachs, the firm is struggling in many of the chief technology markets, and is unlikely to be a favourable investment until the status quo changes. So, it is not what Microsoft is doing as much as what it is not doing, and the firm was criticised for not entering into what are some growing markets.
As well as this, the economic slowdown, which has led to the postponement of many PC upgrade plans, has had an impact. For example, only 12 per cent of firms are expected to update their systems this year, as opposed to 26 per cent last year.
The Goldman analyst note adds scathingly, “We have increased caution near term on a more elongated PC refresh cycle, combined with the newer threat of notebook cannibalisation from tablets, where Windows does not yet have a presence.”
Goldman Sachs made a number of recommendations designed to help drive the firm back into its good books. These range from an increased investment in the cloud, the divestment of ‘peripheral assets’ - it mentions Xbox which it said could be unprofitable - and increased revenues for shareholders.
Commenting on the cloud, which is increasing in enterprise favour, the report explained, “Microsoft has a strong portfolio of enterprise datacentre assets and could become a leader in cloud deployments, but the competitive environment remains highly in flux, with Microsoft still not a clear ‘winner’, in our view.”
Fittingly perhaps, Microsoft’s Steve Ballmer was in London this morning discussing the cloud and the firm’s commitment to it.
"The cloud will open a whole new range of opportunities to use computing in more valuable ways. There are new applications that you couldn't have built in a world without the cloud," Ballmer said.
Goldman also urged Microsoft to increase its standing in mobile communications, where again it has often been accused of being lacking.
“Microsoft’s core Windows and Office franchises is unlikely to improve until the company gains a firmer foothold in the growing migration to mobile devices – both smartphones and tablets,” the analysts said. “We don’t see this happening this year as Apple’s iPad and iPhone plus Google’s Android operating system are well established."
As for Windows Phone 7, the analysts said that the firm needed an "immediate success" upon release, which is slated to happen on the 11 October. Hyper-V, Microsoft’s play into the virtualisation market, also has some work to do before it is a serious competitor of VMware, Goldman noted.
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