Analysts Floored by Microsoft's (MSFT) Q211 Report, Offer Comments

Microsoft Corporation (Nasdaq: MSFT) are getting socked, to the tune of 4.5%, following the Redmond, WA-based tech giant's second quarter 2011 earnings report.

MSFT reported EPS of $0.77 on revs of $19.6 billion, topping the consensus EPS of $0.74 and revs of $19.14 billion. The company reaffirmed their outlook for operating expenses.

Commenting on the results:

• Deutsche Bank comments that, overall, Microsoft produced a solid quarter. Gross margins were impacted from Q409 on stronger Kinect and Xbox 360 sales.
  
  DB comments that unearned revs were $13.4 billion, below the consensus of $14.06 billion. They note that contracted but unbilled revs were better than $14.5 billion, a $700 million sequential gain, which should offset some of the unearned revenue miss.
  
  Office 2010 consumer license sales were up 50% when compared to Officer 2007, over the same time frame.
  
  Microsoft sold 8 million Kinect devices, and 6.3 million Xbox 360 units. Windows underperformed, as PC shipments slowed through the quarter.
  
  Looking forward, DB has concerns over continued weakness in the PC market stemming from increased tablet sales. They believe that Microsoft is still well positioned for a shift into the cloud-based IT landscape.
  
  Deutsche has a Buy, with $35 price target on the shares.
  
  
• Well Fargo observed that MSFT Server & Tools division increased 10% from Q410, a positive for both Dell (Nasdaq: DELL) and Hewlett-Packard (NYSE: HPQ) which should benefit from strong enterprise server spending.
  
  Wells says that, amid stronger results, investors will be concerned with weaker Windows results. They ask: What will Microsoft do in FY12 on the consumer spending side of the business?
  
  They like the Windows Phone 7 (2M licenses in Q211), and Kinect and Xbox are exceeding even the most aggressive expectations.
  
  But, with Apple's (Nasdaq: AAPL) iPad 2 to debut soon, and new Google (Nasdaq: GOOG) Android devices, Wells doesn't believe that Microsoft will have a response until H212.
  
  Wells has a Market Perform on the stock, with a valuation range of $28 - $30.
  
  
• BGC Partners notes that MSFT's Business segment reported 24% year-over-year growth, to $6.03 billion in revs. Office saw the fastest selling consumer version in its history, and Windows 7 is the fastest selling OS in its history, with 300 million licenses since launch. Based on the low traction of Vista, BGC said that that will help Microsoft power through FY11 as consumers continue to yen for an upgrade.
  
  BGC points out the search revs increased 17% to $691 million. Though only making up a small fraction of the total, BGC sees it as a plus, with increased revs offsetting losses in the unit.
  
  BGC currently rates Microsoft a Buy, with a price target of $34.
  
  
• Soleil thinks that their Business unit is improving overall based on the pickup in IT spending. The firm also sees the "shockingly strong" Office 2010 momentum continuing..
  
  Going against the grain a little, Soleil says that concerns in the PC market are overblown, and they expect shipments to accelerate into the high single-digit range.

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