Gartner released its quarterly PC market share data last night after the close, and it showed another quarter of stabilization. This is good news for Microsoft (MSFT) and with our restrictions lifted we'll watch the open today to possibly add. 3Q 2014 PC unit shipments fell 0.5% y/y but increased 4.5% q/q with strength in the developed markets -- with the highlights being the US rose 4.2% and EMEA increased 9.6%.
In the US -- where the company enjoys the highest ASPs -- it posted the sixth consecutive quarter of growth. And the EMEA markets increase was the third quarter in a row of gains. It is becoming increasingly clear that the saturation in the tablet market is having a positive impact back on PCs and we expect this momentum to continue -- especially since tablets penetration in more mature markets is now approaching 45-50%. The partial offset is that APAC declined 5.3% and Latin America fell 10.9%.
The relatively flat y/y growth shows the PC market is stabilizing and removes a major headwind for Microsoft vs. prior years, which had seen high single-digit declines in PC unit demand.
We continue to like the story under new CEO Satya Nadella and believe he and his team will unlock value for shareholders – right-sizing its cost structure, exiting non-core businesses, returning cash to shareholders (financial leveraging), and focusing on growth end markets, like cloud and mobile.
Shares trade at 15x forward estimates, which is a discount to the S&P 500 of 16x and the company's five- year historical value of 19.6x. We believe there is value here and more upside.
Regards,
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUSwas long MSFT.