Ahead of the Bell: Focus on PCs in Microsoft's 3Q

AP News
Posted: Apr 18, 2013 10:41 AM

REDMOND, Wash. (AP) — Microsoft will release its latest quarterly financial results Thursday amid a drastic decline in sales of personal computers, most of which run the company's Windows operating system.

The results for the first three months of 2013 are due out after the stock market closes. They cover Microsoft's first full quarter selling Windows 8, the most radical overhaul of its personal computer operating system since the mid-1990s.

Windows 8, released in late October, can be controlled by touching a display screen, as well the more traditional use of a keyboard or computer mouse. Microsoft Corp. hopes to make its software more appealing for tablet users while still retaining enough features from previous versions of Windows to run software primarily used on desktop and laptop machines.

Microsoft says it's happy with the initial response to Windows 8, but many on Wall Street have been disappointed with what they have seen so far. The research firm IDC believes Windows 8 is so confusing that the new operating system has deepened a yearlong decline in the sales of personal computers, which aren't being replaced as frequently as more people embrace smartphones and tablets. Worldwide PC sales fell by 14 percent during the first three months of the year, the steepest quarterly decline recorded since IDC began tracking the market in 1994.

Those numbers don't bode well for Microsoft, which still relies on its Windows franchise for about one-fourth of its revenue. The company, which is based in Redmond, Wash., also sells other popular software, such as word processing, spreadsheet and email programs, as well as online advertising, the Xbox video game console and various technology tools that help manage other companies and government agencies.

A conference call scheduled to discuss the company's fiscal third-quarter performance will give Microsoft a chance to explain why it believes Windows 8 and other recent changes to its Office software and webmail service will pay off for the company. Reflecting widespread investor skepticism, Microsoft's stock price has risen by just 3 percent since Windows 8's release, while the Standard & Poor's 500 index has surged by 10 percent.

The second-guessing about Windows 8 has amplified the pressure on Microsoft CEO Steve Ballmer, who doesn't usually participate in the company's conference call about quarterly earnings. That, as usual, will be handled by Chief Financial Officer Peter Klein.