MSFT Has Work to Do, But I’m Still In

by Ed Elfenbein | July 19, 2013 9:40 am

After the closing bell on Thursday, Microsoft (MSFT) reported earnings of 66 cents per share, which was 9 cents shy of estimates. The stock dropped more than 6% in the after-hours market and is down almost 9% at the market open today.

The problem for the software giant is that PC sales are slowing, and that hurts their Windows business. This was a disappointing report, but what surprised a lot of people is that the company took a $900-million charge for its large inventory of unsold Surface tablets. This is the version of the tablet which runs on chips designed by ARM Holdings. The Surface has mostly been a flop. Last week, MSFT said it’s cutting prices to get more buyers, but that looks to be an uphill battle.

Microsoft knows it has a lot of work to do, and that was part of their big reorganization announcement. The tech giant had top-line growth of 10%, which was also below expectations. This was an ugly earnings report, but our investment thesis continues to hold—Microsoft’s price is lower than its value. I’m disappointed by these results, but I’m not ready to ditch the stock just yet. Microsoft remains a value buy up to $38 per share.

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