PC Market Not as Bad as Expected

The PC market may be slightly less terrible than you think. Caris & Co. analyst Curtis Shauger Wednesday morning writes that PC unit sales will probably be flat this quarter, rather than down 3%, as he’d expected back in November when he initiated coverage of Microsoft (MSFT) with an “Average” rating. That improved outlook, and the prospect of accelerated Microsoft stock buybacks, caused him to raise his estimates for the current quarter. Microsoft may buy back as much as $8 billion of stock per quarter for “the next several quarters,” writes Shauger, an acceleration from the September fiscal first quarter’s $6.6 billion buyback. Shauger raised this quarter’s revenue estimate to $17 billion from $16.9 billion, and increased his EPS estimate by 2 cents to 50 cents.

He is, however, lowering the outlook for Microsoft’s fiscal 2009 and 2010, citing the prospect that “lower average selling price Netbooks will probably drive growth,” which may come with lower client licenses for Windows, hurting Microsoft’s profit. He’s now looking for $63 billion and $67 billion, down from prior estimates of $63.8 billion and $68.6 billion. Regarding speculation that Microsoft will be laying off some employees, Shauger thinks that despite the PC market being “extremely soft,” nevertheless, “any potential reduction in headcount by Microsoft could be more muted than the market is expecting.”

Microsoft shares Wednesday are up 22 cents, or 1.14%, at $19.56.