Microsoft Analyst Sherlund Sees No Growth in PC Market

The market for traditional personal computers has no growth left because people are increasingly using mobile devices to connect to the Web, said Rick Sherlund, an analyst at Nomura Holdings Inc. covering Microsoft Corp. (MSFT)

As consumers shun personal computers in favor of smartphones and tablets, the PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS ISuppli, the first annual decline since 2001. The recent debut of Windows 8, the latest version of Microsoft’s flagship operating system, hasn’t delivered a sales boost, according to NPD Group Inc.

“Windows 8 is off to a very rough start, not all the hardware is out yet, not all the hardware vendors have done a good job yet,” Sherlund said today in a radio interview on “Bloomberg Surveillance” with Tom Keene.

Sherlund recommends buying Microsoft shares, according to data compiled by Bloomberg.

Redmond, Washington-based Microsoft said last week that it has sold 40 million software licenses since Windows 8, went on sale on Oct. 26. Some of that tally includes versions shipped to corporate customers with multiyear contracts, making it a poor indicator of consumer demand.

NPD said U.S. retail sales of PCs running Windows have been weak, with revenue declining 21 percent since the latest software release, compared with the same period a year earlier.

Surface Tablet

The decrease has been fueled by a 24 percent drop in sales of notebook computers as many customers opt for Apple Inc. (AAPL)’s iPad or tablets powered by Google Inc. (GOOG)’s software instead of Windows, NPD said. The report excluded Microsoft’s own stores, where the company’s Surface tablet is sold.

“People just don’t need PCs the way they used to,” Sherlund said. “They’ve got alternatives now for accessing the Internet. They’ve got smartphones and tablets, so there’s really no growth left in the traditional PC market.”

Microsoft said last week that it will charge a minimum of $899 for its Surface Pro tablet, the version that has an Intel Corp. (INTC) chip, and is targeted at corporate customers or those who want to use older Windows programs. The high price has analysts such as Wes Miller at Directions on Microsoft concerned it will put off tablet shoppers.

In order to better compete with Apple and Google, Microsoft is moving to a new software development system for Windows that would involve issuing smaller, more frequent updates on more of an annual cycle, according to people familiar with the matter. The first such update is planned for next year.

It will take another quarter or two until Windows machines with compelling features and prices to reach consumers, Sherlund said in the interview.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net