Thursday, July 21, 2011

Microsoft Corp. (NASDAQ: MSFT): Q4 Earnings Preview 2011

Microsoft Corporation (NASDAQ: MSFT), the world's largest software maker, is scheduled to release its fiscal fourth-quarter earnings after the closing bell on Thursday, July 21, 2011. Analysts, on average, expect the company to report earnings of 58 cents per share on revenue of $17.25 billion. In the year ago period, the company reported earnings of 51 cents per share on revenue of $16.04 billion.

Microsoft Corporation develops, manufactures, licenses, and supports a range of software products and services for various computing devices worldwide. The company is organized into five operating segments: Windows and Windows Live, Server and Tools, Online Services, Microsoft Business, and Entertainment and Devices. 

In the preceding fiscal third-quarter, the Redmond, Washington-based company's net income was $5.2 billion, or 61 cents per share, compared to $4.0 billion, or 45 cents per share, in the year-ago quarter. Revenue climbed 513% to $16.43 billion from $14.50 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 56 cents per share on revenue of $16.19 billion.

At its last earnings call in April, the company reaffirmed operating expense guidance of $26.9 billion to $27.3 billion for the fiscal year ending June 30, 2011. Microsoft also provided preliminary fiscal year 2012 operating expense guidance of 3% to 5% growth from the mid-point of fiscal year 2011 guidance, or $28.0 billion to $28.6 billion.

Though Microsoft operates in a number of markets, including online advertising and video game systems, its financial results are still dominated by the business units that includes its Windows operating system software and Office software suite. Revenue in the division that includes the Windows software has fallen from the previous year in each of the previous two quarters, intensifying the pressure on the company to show growth in the April-June period.

Research firms IDC and Gartner recently published data suggesting that shipments of personal computers rose between 2.3% and 2.6% in the second quarter.

In May, the company previewed the upcoming version of its new Windows operation system, internally code-named Windows 8 that focuses on optimization for touchscreen hardware, including tablet PCs. Windows 8 is expected to launch in 2012. It will be a unified OS for computers as well as tablets. We can also expect to see some news about that in the earnings preview.

However, Microsoft’s mobile platform faces stiff competition from both Apple’s iPhone, and Google Inc.’s (NASDAQ: GOOG) increasingly popular Android mobile software. In February, Microsoft and Nokia Corp. (NYSE: NOK) announced a broad strategic partnership under which Nokia will use adopt Windows Phone as its principal smartphone strategy and Symbian will become a franchise platform.

Microsoft has received some criticism for being slow to attack the tablet market as Apple’s iPad and a host of competing slate or tablet devices are poised to reshape the software industry.  Microsoft has reassured many that it’s serious about the tablet market, thanks to the company’s recent announcement that it will develop its software to be compatible with semiconductor technology developed by partners of ARM Holdings PLC (NASDAQ: ARMH), which predominates in the tablet market.

The company is trying hard to capture a bigger share of the online search advertising market. Bing currently has slightly less than 4% market share worldwide while Yahoo Search which is powered by Bing has close to 6% global market share. While Bing’s combined market share is much lower than Google, it is growing year over year with deals like the partnership with Baidu (NASAQ: BIDU). Microsoft is already having a a search-advertising partnership with Yahoo Inc.(NASDAQ: YHOO).

Microsoft is also taking initial steps towards cloud computing to counter a threat from Google and others. The company recently launched beta version of its Office 365 applications, which include Web-hosted email and other tools available via subscription. With the launch of Office 365, Microsoft hopes to become the dominant player in the cloud based productivity software market which is currently led by Google. More than 50,000 businesses have signed up for Office 365 since its launch.

Meanwhile, The Xbox 360 with the Kinect addon has been a huge hit and has been the number one selling console in the United States for over an year now. 

The company recently agreed to acquire internet communications company Skype Technologies SA for $8.5 billion in cash from an investor group led by Silver Lake.  It is expected to enhance Microsoft's existing portfolio of real-time communications products and services. As part of the deal, Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft said it will continue to invest in and support Skype clients on non-Microsoft platforms. Also, the acquisition is expected to give Microsoft a boost in the enterprise collaboration market as Skype's voice, video and sharing capabilities would enable Microsoft to better compete against rivals like Cisco Inc. (NASDAQ: CSCO) and Google.

Full Disclosure: None.
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