The economic slowdown has significantly impacted PC shipments in developed and emerging markets (EM), leading to lower Client revenues. Concerns such as declining Average Selling Prices (ASPs) and weak economic figures remain a threat to long term performance of the company, forcing Microsoft to adopt cost cutting measures. However, we believe an anticipated global economic recovery by 2H 10 will improve PC shipments and, therefore, Windows 7 shipments. Greater PC shipments and the lower pricing of Windows 7 are expected to fuel Client revenue growth over the long term. Moreover, Microsoft has a strong cash position in the current weak credit market conditions in the US, which is likely to allow the company to adopt an inorganic growth path. Hence, at current price levels, we reiterate our BUY rating for Microsoft’s NASDAQ stock.

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