Xbox Gift From Microsoft?

Later in the year, Microsoft will add a key virtualization technology to that server upgrade to better control use of Windows within virtualized data centers and to compete with virtualization leader VMware(VMW Quote - Cramer on VMW - Stock Picks).

D.A. Davidson analyst Alan Davis raised Microsoft to a buy Tuesday, lifting his price target on the stock to $40, in line with the consensus, due to strong Xbox sales during the holiday season and PC unit growth estimated at 14%. Some 4.3 million Xbox 360s were sold, he wrote.

Davis believes the company's international strength should offset weakness in the U.S. market. And in emerging economies, where PC sales are strongest, Davis expects Microsoft's inroads against software piracy to continue to pay off. Davidson expects to receive, or intends to seek, compensation for investment banking services from Microsoft.

The strong PC shipment figures for the quarter from Gartner and IDC, putting sales between 13.1% and 15.5%, are ahead of Microsoft's projections for 11% to 13% growth in its PC software business, according to JPMorgan analyst Adam Holt. Microsoft is a non-investment banking client of the firm.

The strong numbers bode well for Microsoft's client and Office revenue, which, together with the strength of Xbox, should drive the quarter's outperformance, Holt wrote recently.

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