January 10, 2013, 6:20 PM — Concerns over Windows 8 sales and over the PC market dynamics have prompted Morgan Stanley to downgrade its recommendation on Microsoft's stock.
Morgan Stanley, which previously rated the stock as Overweight, the equivalent of a "buy" recommendation, has now lowered it to Equal Weight, the equivalent of a "hold" recommendation. Microsoft declined to comment on the report.
In a research note published on Thursday, Morgan Stanley analysts wrote that they don't expect a near-term improvement in the PC market, especially because corporate sales will weaken as businesses' upgrade cycle to Windows 7 gets closer to completion.
This weak PC market will not only hurt Windows 8 sales, they wrote, but also the new version of the Office suite -- Office 2013 -- which is due to ship this quarter.
In addition, the Morgan Stanley analysts have been unimpressed by the first sales wave of Windows 8, which began shipping in late October.
"PC growth saw a significant deceleration in 2Q/3Q and PC data suggests that Windows 8 has not been a significant driver of growth in the market with sluggish holiday season sales," reads the research note, authored by Adam Holt, Jennifer Swanson Lowe and Melissa Gorham.
Last week, NPD Group reported that Windows 8 "did little to boost holiday sales or improve the year-long Windows notebook sales decline" as Windows notebook holiday unit sales fell 11 percent, similar to what happened on Black Friday and in 2012 overall.
In November, NPD Group warned that the consumer Windows PC and tablet market hadn't gotten the needed boost from the Windows 8 launch.
However, this week Tami Reller, CFO and chief marketing officer of the Windows Division, said that Microsoft has sold more than 60 million Windows 8 licenses so far, "roughly" in line with Windows 7 sales at a similar release stage three years ago.
"We feel good about what we've been able to accomplish," Reller said at a presentation at the JP Morgan Tech Forum, adding that there is "so much more opportunity ahead."
There is intense attention on Windows 8 sales because the OS upgrade is one of the most important products in the company's history.
With a user interface that has been radically redesigned for touch-based devices, Windows 8 has been architected to help Microsoft improve its small market share in the red-hot tablet market dominated by Apple's iPad and by Android devices.
Despite Reller's positive spin on Windows 8 sales, some industry analysts remain skeptical about the new OS's performance in the market.