Shares of Microsoft (MSFT) are leading the Dow Jones Industrial Average lower, with shares off over 1.5% in midday trading.
ANALYST BRIEFING: The Seattle-based tech giant hosted a Financial Analyst Briefing in conjunction with its annual Build developer conference on Wednesday. Chief Financial Officer Amy Hood said the company still has "headwind" from a phone compatibility issue for the first half, adding that the company expects the issue to end soon after that. Hood explained that gross margin is expected to decline "a little bit" from commercial cloud and also from hardware launches. Referring to hardware launches, Hood said that launches tend "to have and can have an impact on company gross margins in a given year even if the structural improvement in every segment increases." Hood added that commercial cloud gross margins should continue to improve.
ANALYST VIEWS: Following Microsoft's Analyst Briefing, Credit Suisse analyst Michael Nemeroff said the company's expense guide was "predictably foggy," in a note out Thursday morning. The analyst added that Microsoft's management highlighted new product launches, competitive differentiation, and an updated TAM analysis in a financial analyst session during its Build 2017 developer conference. However, the analyst noted that what investors did not get was a reduction in 2018 OpEx, although the company has guided to higher OpEx since 2015 and beaten guidance each year, thus making him believe that Microsoft will once again outperform consensus EPS expectations. Nemeroff reiterated an Outperform rating and $80 price target on the shares. Another analyst, Keith Bachman from BMO Capital, noted that some of the company's comments indicate that its fiscal 2018 results could miss expectations, but he's more upbeat on the company's longer term outlook and thinks that its operating income will increase around 5% in FY18, enabling the stock's multiple to rise. He kept a $75 price target and an Outperform rating on the shares.
PRICE ACTION: Shares of Microsoft are down 1.5% to $68.27 in midday trading.
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