Microsoft Earnings Preview: Expect A Weak First Quarter

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Microsoft Corporation (NASDAQ:MSFT) is set to announce its first quarter results on Thursday, October 18, 2012, just a week ahead of releasing Windows 8 operating system. Expectations from Microsoft have dropped, as PC sales are down more than 8 percent worldwide. Analysts’ estimates have dropped to 57 cents a share from the earlier projection of 60 cents a share. For the full year, analysts are projecting $3 per share in earnings.

Microsoft Earnings Preview: Expect A Weak First Quarter

Net revenues are expected to drop 5.3 percent Y-o-Y to $16.45 from $17.37 billion in the first quarter last year. For the fiscal year 2013, revenues are projected at $80.11 billion. The software giant has also deferred some Windows and Office revenues in the later quarter, because the company will offer an upgrade from Windows 7 to Windows 8 for just $15, for a limited period. That means the company didn’t book all the revenues from Windows 7. Similarly, the company said people who bought Office 2010 can upgrade to Office 2013 when it hits the market.

In the June ending quarter, the company suffered a loss of $492 million for the first time in 26 years, as it wrote down the value of aQuantive, an Internet advertising company firm it acquired in 2007.

What is to be seen is the launch of Windows 8 and Windows Phone 8. Will they help Microsoft Corporation (NASDAQ:MSFT) gain a foothold in the smartphone and tablet markets, especially when there is fierce competition in both markets? The company is also launching its own tablet, the Surface, and that will hit on the toes of PC makers who buy software from Microsoft.

We see that Windows 8 won’t help much in the ailing PC market because businesses are usually conservative when it comes to upgrading the operating system. There are still thousands of businesses that haven’t upgraded from Windows XP.

Despite a somewhat lackluster first quarter, we believe that Microsoft Corporation (NASDAQ:MSFT) remains the best software vendor. The company has a wide range of popular products, it is foraying into cloud computing, its strength in the emerging markets and continued heavy spending on R&D prove that.

Analysts are increasingly optimistic about the company, and they rate Microsoft Corporation (NASDAQ:MSFT) as a Buy.

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