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Shares of Microsoft (MSFT) are down $4.03, or almost 9%, at $42.98, after the company yesterday afternoon narrowly beat fiscal Q2 revenue expectations but forecast the current quarter’s revenue lower than consensus by a whopping $3 billion.

The stock has gotten four downgrades this morning, from Citigroup’s Walter Pritchard, cutting the stock to a Sell from Neutral; Nomura Equity Research’s Rick Sherlund, cutting to Neutral from Buy; Mark Murphy of J.P. Morgan, cutting his rating to Neutral from Overweight; and MKM Partners’s Kevin Buttigieg, cutting his rating to Hold from Buy.

Pritchard, who slashes his price target to $38 from $50, writes that the Q2 report saw Microsoft delivering upside on low-margin goods, such as its Lumia line of smartphones, and Xbox, which meant that less profit flowed to the bottom line as Windows and other high-margin items “were weaker."

Although Microsoft blamed the foreign exchange hit from a rising dollar for holding back revenue, "there is more to the weakness than this," he writes.

Pritchard concludes the “end-of-life” of Windows XP , which drove a corporate upgrade of PCs last year, and, hence Windows, was a bigger positive factor than previously realized for Microsoft:

While FX does weigh on revenue and EPS (as well as help OpEx), revenue guidance comes down by ~12% vs. street for Q3 while FX impact is just 4% of this. We chalk up most of the rest (~$1B vs. our est) to Windows (~40% of it) as well as lower hardware revenue (coupled with lower GM). It is now clear that WinXP expiration had boosted results in FY14 much greater than anyone anticipated (and was messaged by MSFT).

J.P. Morgan's Murphy, cutting his price target from $53 to $47, is inclined to accept Microsoft's explanation that the main issue is foreign exchange, and he's not overly worried about the poorly performing emerging markets, such as Russia:

An expectation for continued weakness in China (govt tensions), Russia, and Japan (demand lull post the sales tax increase) also adversely impacted guidance, although we view these as likely to be part of a normal ebb and flow as opposed to permanent issues.

What he's actually concerned about is Microsoft's intent to keep on spending right through the revenue slump:

While revenue guidance was impacted by adverse FX movement consistent with expectations, Microsoft will not exercise as much spending discipline as we had anticipated, resulting in an 8% reduction in our FY15 EPS forecast. While incremental commentary included offsetting puts and takes (e.g., a doubling of the share repurchase pace through Dec 2016, and geopolitical-driven weakness in China/Japan/Russia), the downward EPS revision could delay the timeframe for shares to sustainably cross above $50 in our view.

On the other hand, Bernstein Research's Mark Moerdler, reiterating an Outperform rating on the shares, and trimming his price target by a dollar, to $55, leads off with things here to cheer, such as the rise in cloud computing revenue:

Cloud growth was strong with commercial Cloud revenue growing 114% and reaching a $5.5B revenue run rate, which we note is larger than Salesforce.com's subscription revenue annual run rate. Meanwhile, Office 365 commercial seat growth was 88% Y/Y. Consumer Office subscription growth accelerated in the quarter, growing 30% Y/Y and reaching 9.2M subscribers. He also notes that the company's commitment to finishing its share buyback authorization -- $31 billion currently -- by the end of fiscal '16 is a big boost in payout:

Microsoft will be increasing their return of capital announcing they would buy-back $31B of stock over the next 8 quarters. This is almost double the buy-back rate from a year ago and > 50% the recent average.

Moerdler acknowledges the forecast "may worry some investors," but he thinks the quarter and the outlook actually show Microsoft moving right along with the changes he'd hoped for, and he thinks the shortfall is no big deal:

Discussions with management revealed that a large portion of the weakness in licensing sales were due to weakness in Russia, China and Japan. Russia and China suffered from geopolitical issues which are not expected to improve in Q3. Japan was considered to be a very different problem where a recession has partially impacted sales, but more so the Y/Y compare was difficult due to the VAT change in Japan. Y/Y sales compares in Japan are expected to improve in Q3 as this anniversary of the VAT change occurs. We have been looking for 1) improving margins 2) return of more capital 3) strong Cloud growth and longer term Cloud margin improvement. We saw 2 of 3 of these this quarter and management has announced the increased buyback which is in-line with the 3rd. Guidance appears weak but given the FX and geopolitical issues we believe our thesis will continue to play out. We believe weakness in the stock creates a buying opportunity.

Pacific Crest's Brendan Barnicle has a slightly different take on things. He reiterates an Outperform rating, and a $58 price target, writing that the company has "decoupled itself from the PC cycle," to an extent, but that its transition to cloud computing is not going to be without pain:

Microsoft is adapting its model, including Windows, to the cloud, and that transition will not be smooth. Nevertheless, Microsoft posted 114% year-over-year growth in Commercial cloud, driven by Office 365 and Azure. Similarly, Office 365 Home and Personal subscribers increased 30% sequentially to over 9.2 million. But Microsoft's guidance was disappointing, and a bit confusing, largely because of management uncertainty about the move to the cloud.

And that transition to cloud causes his own estimates to become less sure, he writes:

We are lowering our F2015 revenue estimate to $94.1 billion from $98.0 billion, and lowering our F2015 EPS estimate to $2.37 from $2.59. While most of the reduction is due to Windows and FX, the move to subscription revenue makes it more difficult to offset the Windows weakness. Like its large-cap peers, Microsoft is adapting its business to the cloud. FQ2 and in the company's guidance make it clear that Microsoft will struggle with this transition. Yet, Microsoft still remains better positioned than its peers.

Update: At the open, the stock has deepened its decline, off $4.60, or 10%, at $42.41.