Microsoft's Quarter Profit Expected Lower as Smartphones, Tablets Dominate

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Microsoft's year-ago quarter was a happy one, boosted by Windows 7 sales and optimism about an economic recovery. But Microsoft missed the smartphone's rise to power and has been edged out of the tablet market by Apple's iPad.

(Reuters) - A year ago, Microsoft Corp blew away Wall Street's earnings forecasts with blistering sales of its new Windows 7 operating system and trumpeted optimism about the recovery in tech spending.

This week, with its stock trading slightly lower than a year ago, the world's largest software company is set to report lower profit as PC sales growth fizzles, and it struggles to convince investors that it can grab a foothold in the fast-moving mobile and tablet markets.

"Microsoft is still a juggernaut in the PC business, Windows-based machines are still selling over 300 million a year," said Tim Bajarin, president of tech research firm Creative Strategies.

"But they missed the smartphone revolution, and even though they were the first to really push the tablet, Apple basically redesigned it and left Microsoft in the dust."

Most investors expect a solid quarter for the company, but are more focused on fears that Microsoft's new Windows phone software isn't selling well. And while approving of a recent decision to make a version of Windows for ARM chips, the market realizes that means there won't be a Windows-based challenger to Apple Inc's iPad for at least two years.

"I wish they did this (the switch to ARM) two years ago, it's something they should have thought of," said Sid Parakh, analyst at McAdams Wright Ragen. "But it is a long game. The question becomes: Is the iPad a cannibalization of Microsoft's existing products, or an added component of consumer electronics spending? I'm sure it's a mix of both."