Microsoft Corp. shares fell 2 percent Monday after Goldman Sachs cut its rating to "neutral," citing worries of a slow recovery in PC sales and a threat from tablet computers, which do not include Windows software.
Goldman said the PC refresh cycle, which many had hoped would swing higher this year and bolster demand for Microsoft's products, now appeared "more elongated."
It also said that Microsoft's problems were "not just a this-year issue," saying revenue and investor sentiment would remain under pressure until the world's largest software maker gains a firmer foothold in smartphones and tablet computers.
Microsoft is expected to launch its Windows Phone 7 software on Oct. 11.
But Goldman said it did not see momentum this year, with Apple's iPad and iPhone, and Google's Android already well established.
The brokerage cut its price target on Microsoft shares to $28 from $32.
Shares of Redmond, Washington-based Microsoft fell 50 cents to $23.88, extending a 23 percent decline from their 2010 high of $31.58 in April. In comparison, rival Apple's stock had risen 6 percent in the same period.
Goldman also said the company should raise its dividend beyond the recent 23 percent increase.
"We believe this would open the door to a larger investor base and keep the company more diligent from a spending perspective," it said, adding the company should also divest non-core businesses like gaming.
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