Solid Quarter, But No Fireworks

By Reuters  |  Print this article Print

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.

PC sales, the surest guide to Microsoft's overall health, rose only 3.1 percent in the last three months of last year, according to research firm Gartner. The year as a whole didn't match early optimism, with PC sales rising 13.8 percent, well below Gartner's summer forecast of 19.2 percent.

The good news for Microsoft is that business customers -- the core market for its software -- are buying new computers more readily than cash-strapped consumers, who are holding off on purchases or buying iPads instead.

The resilience of business customers helped tech bellwethers IBM and Intel Corp post positive results and outlooks over the past two weeks, helping their stocks higher.

But the market likely will demand more from Microsoft.

"We're investors, we have short memories," said Kim Caughey Forrest, senior analyst at Fort Pitt Capital. "We need a lot of reassurance."

Microsoft is expected to report profit of 68 cents per share, according to Thomson Reuters I/B/E/S, lower than the 74 cents it reported a year ago.

Sales of Windows 7 are still going strong, but likely won't match the year-ago figure, which was boosted by a one-time deferral of revenue from pre-sales of the operating system.

Overall sales are expected to inch up to $19.2 billion from $19 billion a year ago, helped by the unexpectedly strong sales of the Kinect hands-free gaming system, which sold 8 million units over the holiday shopping season, above Microsoft's own target of 5 million.

However, given the generally lower profit margins on hardware as opposed to software, the Kinect sales are not expected to trigger a spike in profit.