Beware of PC Stocks
While enterprise technology firms and those ready for the next era of computing may be in better shape, companies tied to the aging PC era are under pressure. PC shipments are tumbling as fewer consumers replace aging laptops and instead buy new tablets or smartphones. That data led to a rush of downgrades of Microsoft this week.
(Read More: Tech Stocks Slammed as PC Industry Shift Intensifies)
Goldman Sachs cut the software giant to "sell" while Nomura took Microsoft shares to "neutral." BGC cut the stock to "hold" as well.
"We lower our estimates and ratings to reflecting worsening PC trends and a lack of traction in tablets and smartphones," Goldman analysts wrote in a note. Goldman analysts expect PC market share to decline to 65 percent in 2013 and 59 percent in 2014, down from 73 percent in 2012.
"As we expect Microsoft's market share in total compute to continue to erode over the next two years, we think the company's financial results also gradually deteriorate unless Microsoft successfully repositions itself as a more meaningful participant in the new era of consumer compute," they wrote.
Consensus Wall Street earnings estimates for Microsoft are too high — by 3 percent in 2013 and 5 percent in 2014, Goldman analysts say.
Nomura analyst Rick Sherlund is also a bit bearish on the PC market in the near term. But he sees better days ahead when Intel's new notebook processor extends battery life of ultrabooks — super light notebooks — and prices fall to an expected $600 level. They now retail in the $900 to $1000 range. "There's an opportunity for the stock to do better when you get to the second half of the year," he said.
Again, the growth in tablets and other mobile devices is outpacing demand for desktop PCs. "PCs are a mature market in the enterprise space and in gradual decline, while in the consumer space half the market does not need Office, so they don't need Windows and don't need Microsoft," he wrote in a note. "These consumers want an easy-to-use experience to consume content with their tablet or smartphone, with disposable apps and a rapid pace of innovation."
Sherlund of Nomura continued, "If the need is just for a tablet, Microsoft is not the first or second choice in the market and Windows 8 does not change that dynamic."
But there are still Microsoft bulls. "This story is not just about Windows," UBS analyst Brent Thill told CNBC. "Twenty four percent of their revenue is Windows-based." The bulk of their business is enterprise. "They've got a great server business, a great Office business," Thill said.
Thill has a "buy"rating with a $33 price target. "Their consumer business is weak; Their enterprise business is still very strong," he said. "And that is the real story."