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Distilling impact of Microsoft earnings results: 1) Windows 7 will drive more upgrades 2) revenue per search for Bing declines significantly

|Includes:Microsoft Corporation (MSFT)
Microsoft reported its fiscal year 2010 first quarter results last week and we've updated the Trefis price for Microsoft slightly from $27.19 to $27.38 as a result.  Strong early demand for Microsoft's new Windows 7 operating system and the performance of Bing search were important drivers of our updates.

Microsoft indicated strong demand build up amongst PC makers in September for Windows 7.  As a result of this and positive reviews from notable Windows 7 testers, we've increased our expectations for the number of upgrades to Windows 7 occurring in 2010.  We now expect Windows Upgrades Sold in 2010 to be 63 million, up from our previous forecast of 46 million as more Windows customers upgrade from Vista or XP.  Our forecast for the number of Windows licenses sold to PC makers (based on Microsoft's market share of PCs) remains the same as we believe we've adequately factored in demand for Windows 7.

Heavy marketing of Microsoft's Bing search engine has led to some market share gains; however, based on the financial information reported by Microsoft to date, we believe that the company has sacrificed on Revenue per Search (RPS) which has declined more than that of its primary competitors Google and Yahoo.  We've reduced our RPS forecast for 2009 from $41.97 per 1,000 searches to $34.97 per 1,000 searches, representing a 25% decline in RPS over 2008 rather than the 10% decline forecast earlier.  We have also updated RPS by the end of the Trefis forecast period to $44.24 per 1,000 searches, down from $53.09 before.

In addition to Windows and Bing, we've updated the Windows Server and Xbox & Zune segments of Microsoft based on earnings.  You can view a detailed summary of our updates here (scroll down to the comments section).

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Stocks: MSFT