Microsoft Slips On Windows 8, Surface Worries

Shares of Microsoft (MSFT) were falling 1.4% in recent trading, on worries about slow sales for PCs, tablets, and Windows 8.

While Microsoft said earlier this week that Windows 8 was off to a great start, some have argued that sales have been sluggish, and even bulls have called the transition ‘awkward‘. Windows 8 isn’t offering the boost to PC sales some might have hoped, as sales of stallin the face of competition from smartphones and tablets.

As for tablets, a recent report by NPD Group said that the Surface might not be the answer to Microsoft’s woes: �Windows 8 tablet sales have been almost nonexistent, with unit sales representing less than 1% of all Windows 8 device sales to date,� said analyst Stephen Baker.

Some are also worried about the pricing of the Windows 8 Pro Surface models, set to hit stores in January; yesterday Microsoft released pricing information on its official blog, with a 64GB standalone Surface fetching $899.

The NPD report also noted that an examination of their subset of retailers found that in the first month since the Windows 8 launch, Windows device sales have fallen 21% year-over-year, and Windows 8 has just a 58% share of Windows device sales–Windows 7 commanded 83% in the month after its launch.

Bernstein Research’s Mark Moerdler� was one bullish voice for the stock today amid the negative headlines, maintaining his Outperform rating and $38 price target on the stock, as he sees the negativity as overblown.

He had this to say about the NPD report:

We note that while this data set is largely consumer focused, we find it important to make the distinction that there is a portion of SMBs make purchases through these retailers and online (ex. Amazon), although the data’s proportion is strongly skewed toward consumers. However, we believe retailers still have Windows 7 devices for sale and that consumers can purchase these devices and take advantage of the $14.99 Windows 8 upgrade offer from a Windows 7 device. This may help to explain Microsoft�s strong 40M Windows 8 license number (see below) but Windows 8 sales being a lower percentage of Windows device sales. We believe that there also may have been a weak assortment of
Windows 8 devices widely available promptly after the release.

Windows 8 tablet unit sales have been less than 1 percent of all Windows 8 device sales and ~6% of Windows 8 notebook sales were touchscreen devices. Given the nature of Windows 8 and the premium commanded by touchscreen devices, we believe more touchscreen notebooks entering the market (particularly at lower price points) should be a catalyst for Windows 8 going forward. We expect more touchscreen devices to enter the market over the next weeks and months.