SEATTLE Shares of Microsoft Corp (MSFT.O) dipped on Friday, even though the company's quarterly earnings beat Wall Street's average estimates the day before, as short-term investors took profits after a recent run-up to two-year highs.
Most expect the world's largest software firm to benefit from a surge in business tech spending sometime this year, but some doubt remains as to when that will happen, and whether now is the time to buy Microsoft shares.
Investors got over-excited about recent strong sales of servers, thinking that it signaled the imminent resurgence of corporate IT spending, said Richard Williams, analyst at New Jersey-based Cross Research.
"We think people are mistakenly viewing the corporate refresh as starting now and (Microsoft Chief Financial Officer) Peter Klein fueled that fire," he said.
"What they really are seeing is the pilot stage of deployment (of Windows 7). They (corporate IT managers) are buying some licenses for some PCs but nowhere near the number that they will under a full deployment, which we think happens late summer."
Widespread adoption of Windows 7 by large companies, and the introduction of the new version of Office in May and June, won't make an impact on Microsoft's numbers until the second half of this year, said Williams.
That means a big boost for Microsoft's first quarter of fiscal 2011 -- which runs from July thorough September -- but a potentially unimpressive current quarter, which could lead to more selling when results are announced in July.
"If we are getting the timing right, the people who are excited today are going to be disappointed," said Williams. "They are going to think either the economy is getting worse or the refresh isn't what it was supposed to be when they see (fiscal) fourth-quarter numbers not materially different than they were last year."
That could prompt another bout of selling, said Williams, who rates Microsoft a "hold," with a price target of $28, a little below its current level at $30.79. If that happens, it could be time to buy again.
"As the stock sells off, that then creates an entry point to get in for when the refresh is widely recognized," said Williams. "It's just a function of when the dollars really begin to change hands."
Microsoft shares are up only about 12 percent since the market's recent dip in February, compared with a 20 percent rise in the tech-heavy Nasdaq composite index.
That represents a buying opportunity for a company with a solid future, said Kevin Walkush, an analyst at Oregon-based Jensen Investment Management.
"This might be a good time, especially after the recent price drop, for an entry point to the stock," said Walkush.
"At the end of the day, it's still a PC world. If you're an IT manager, you don't get fired for buying Microsoft, but if you take a chance you might," said Walkush, referring to new offerings from Google Inc (GOOG.O) and others. "The Google products are still unproven. You're really putting your personal reputation on the line."
Although Microsoft is losing money in its online business, and can't seem to find a way forward in the phone business, Walkush said he still liked the company's dogged approach.
"They take a long view, a lot like we do. They are willing to take some hits early on for a while and they have a big enough war chest to build share in new markets," he said. "And they continue to control costs, which is nice to see -- historically they haven't really had to."
Sellers of the stock got a little ahead of themselves in calling the start of a new computer purchasing cycle, said Walkush, who expects Microsoft to show a dramatic pickup in its numbers as soon as this quarter.
"They (short-term investors) ran the stock up over the whole week in anticipation of hearing that the corporate refresh cycle was starting," he said. "Once they saw the numbers, it was clear that refresh was not happening in a big way. Some are beginning to realize that the timing is a little bit different than they thought."
(Reporting by Bill Rigby; Editing by Richard Chang)