Earnings Preview: Microsoft 1Q sales seen down

AP News
Posted: Oct 15, 2012 5:17 PM
Earnings Preview: Microsoft 1Q sales seen down

NEW YORK (AP) — Microsoft Corp. is set to report results for its fiscal first quarter on Thursday, a week before it releases Windows 8, its new operating system.

WHAT TO WATCH FOR: Microsoft is expected to report a weak quarter, as PC sales fell more than 8 percent worldwide. Some shoppers held off for Windows 8, which is launching on Oct. 26. Others spent their electronics dollars on tablets and smartphones.

For Microsoft, what really matters is what comes next. Will Windows 8 and its companion, Windows Phone 8, let Microsoft gain a foothold in tablets and smartphones? Neither market is going to be easy to penetrate. How much is Microsoft willing to spend propping up its efforts? Analysts will be listening to comments from executives on a conference call after the release of the report.

Along with Windows 8, Microsoft is launching its first tablet, the Surface. That means it's stepping on the toes of the PC makers who buy its software.

WHY IT MATTERS: Microsoft is the world's largest software company, and its stock is a component of the Dow Jones industrial average.

WHAT'S EXPECTED: For the quarter that ended in June, Microsoft posted the first loss in its 26-year history as a public company, as it wrote down the value of Internet advertising company aQuantive, which it acquired in 2007. For the fiscal first quarter, analysts expect a profit, but the lowest revenue since the quarter that ended in March 2011.

Analysts surveyed by FactSet expect Microsoft to report adjusted earnings of 61 cents per share. However, analysts are split on whether they are modeling in the deferral of revenues from Windows 7 and Office 2013, and the average earnings forecast may not match up well with real expectations. For instance, Nomura Securities said Monday that it expects earnings of 50 cents per share, excluding deferred revenues.

Microsoft is deferring some Windows and Office revenue because people who buy certain PCs running Windows 7 will be able to upgrade to Windows 8 for $15 for a limited period. That upgrade offer means that Microsoft couldn't book all the revenue associated with Windows 7, causing it to defer some revenue into later quarters.

Similarly, Microsoft is letting people who buy Office 2010 upgrade to Office 365 or Office 2013 when they become available.

The average analyst estimate for Microsoft's revenue in its fiscal first quarter is $16.5 billion, according to FactSet.

LAST YEAR'S QUARTER: In the first quarter of the 2012 fiscal year, Microsoft earned 68 cents per share on $17.4 billion in revenue.