“MKM Partners’s Isreal Hernandez today cut his fiscal 2013 and fiscal 2014 estimates for Microsoft, and cut his price target to $28 from $32,” Tiernan Ray reports for Barron’s, “while reiterating a Neutral rating on the stock, writing that sales of the company’s Surface tablet computer appear to be tracking lower than he’d expected, and given that the recently released Windows 8 appears unable for the moment to kick-start PC sales.”

Ray reports, “Hernandez is now modeling 3.3 million Surface sales in the fiscal year ending next June, and 6.6 million in the following year, below his prior estimates for 4.5 million and 10 million, citing “in-store checks” he has conducted: ‘However, Surface RT, launched on October 26th, appears to have been met with little consumer enthusiasm to date and has been hampered by limited availability (Surface can only be purchased online or in a few dozen Microsoft stores). In addition, the Intel-based Surface Pro will be launched in January 2013 at an $899+ price point, a level that we do not view as competitive with alternative tablets such as the iPad.'”

Ray reports that Hernandez also writes, “Based on multiple checks and industry data points, we believe Windows 8 and the Surface tablet are off to a challenging start… The following data points, supported by our recent in-store checks, point to initial weak sales of Windows 8: Windows sales are down 21% y/y in first four weeks post the Windows 8 launch. Windows 8 tablets described as ‘non-existent’ (NPD 11/29). ‘Microsoft originally expected to ship four million Surface RT devices by the end of 2012, but has recently reduced the orders by half to only two million units.’ (Digitimes, 11/28/12) ‘Demand for Windows 8 is not that good right now,’ David Chang, CFO, Austek (WSJ, 11/27/12).”

Read more in the full article here.

MacDailyNews Take: There’s a mountainous iceberg lying in wait, just below the Surface.

Captain Ballmer

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