Microsoft Corporation (NASDAQ:MSFT) is expected to post strong fourth-quarter results driven by better PCs, positive momentum for Surface 3 and stable enterprise business, according to Morgan Stanley analysts Keith Weiss, Melissa Gorham and Jennifer Swanson Lowe, in a report dated July 16, 2014. Strategy of CEO Satya Nadella, organizational changes such as cutting man-power and the pace of the investment for acquisition of Nokia, will remain the main focus. Microsoft is expected to cut up to 18,000 jobs, which will be the biggest cut in the technology firm’s 39-year history. Satya Nadella Microsoft

What to expect from Microsoft CEO

CEO Nadella is expected to elaborate his vision for Microsoft for financial year 2015 and beyond, which will be targeted towards delivering productivity and platform services in a mobile/cloud world, in-line with the broad strategic aims of previous years. Analysts note that Satya’s letter reveals that he is seeking cultural and organizational changes to enhance the implementation of the strategy. Satya said specifically in his letter that Microsoft should increase organizational agility, increase focus and enhance implementation for Nokia segment. The analysts are expecting to get more insight into the changes that will be implemented internally to achieve these goals, during the earnings call. Also, more investment is needed in the Lumia smartphone units, as without it the unit-volume would keep on declining, which will be a hurdle for Nokia to achieve break-even, believe analysts.

Improved PCs, patent licensing

Microsoft can achieve low-level of expenses in the core business through better focus, enhanced execution and also manpower reduction. Fourth-quarter looks promising with the stabilization in the PC market, cloud segment catching speed and probable restructuring that could counterbalance Nokia dilution. The report noted Windows Pro license ‘decelerates’ from 20% year over year growth in the third-quarter to 8% in the fourth-quarter, after the expiration of Windows XP. Also, consumer units will grow marginally from down 11% year over year in the third-quarter to down 10%. Improved PCs and robust patent licensing suggest that the fourth-quarter D&C licensing revenue will be $4.22 billion, a drop of 2% year over year. The shift to office 365 will affect the consumer office in the short-term particularly with O365 on iOS, but the decline will be moderate in the financial year 2015, believe analysts. The report notes that fourth-quarter commercial revenue is expected to come in at $13.2 billion in the wake of stable IT spending, continued share gains and enhanced mix. Microsoft should be well-positioned to benefit given its strong portfolio of cloud solutions around Office 365 and Azur.