Microsoft's earnings are forecast to meet or exceed analyst predictions, but to be lower than the numbers it posted a year ago. In the midst of a global recession, Microsoft has faced declines in revenue from core divisions as the worldwide market for PCs evaporates, and it faces increased competition from Google, Apple and other IT giants. Microsoft is hoping that the refresh of its flagship products, including Windows 7 and Office 2010, will boost its fortunes despite the economic environment.
earnings call on July 23 may not be the happiest for investors, as the company
continues to battle considerable economic headwinds and increased competition,
but it could highlight more than ever the need for its upcoming operating
system, Windows 7, to be a considerable hit.
While Microsoft's earnings are forecast to either meet or exceed several
analysts' predictions, they are also widely expected to be lower than the revenues
the company reported a year ago, before the PC market entered a major slump
amidst a global recession. Over the course of the quarter, Microsoft's stock
has risen 30 percent.
Earnings for the current quarter have been estimated at 36 cents per share
on revenues of 14.37 billion. In the same quarter in 2008, Microsoft reported
income of 47 cents per share on $15.84 billion in revenue-representing a
year-to-year drop of 9.3 percent.
"[Microsoft] is likely to report tepid June quarter revenue,"
Katherine Egbert, an analyst with Jefferies & Co., wrote in a July 21
research note. Despite that dim forecast, though, she also saw "some green
shoots in consumer demand, upcoming 2H seasonality, Win 7 on tap and expense
management now part of the culture."
In April, Microsoft
posted its first-ever quarterly revenue decline,
with its business units
showing mixed results. Its Client division, which includes Windows, saw revenue
drop by 16 percent and income by 19 percent year-over-year, driven downward by
a decline in worldwide PC shipments. Its Business division dropped about 5
percent in revenue and 8 percent in operating income during the same
more information on Microsoft Office 2010, click here.
Microsoft is facing some challenges as it heads into the second half of 2009
Earlier in July, Google announced that it in the second half of 2010 it
would release Google Chrome OS, a stripped-down operating system initially
intended for mininotebooks, aka netbooks. The media cycle immediately leapt on
the story as a possible harbinger of Microsoft's demise, even as most analysts
adopted a more rational wait-and-see attitude.
During his July 14 keynote address at Microsoft's Worldwide Partner
Conference in New Orleans, CEO
Steve Ballmer dismissed Chrome OS as "highly interesting" but
ultimately unable to meet users' needs.
"There's good data that says 50 percent of the time that someone's on
their PC, they're not doing something with the Web browser," said Ballmer,
implying that Chrome OS, as a browser-based operating system, would lack the
combination of full offline and online capability needed by users.
However, the emergence of Chrome OS highlights a larger paradigm shift that
is also forcing Microsoft to adjust. In a radical change from its traditional
focus on desktop-centered applications, Microsoft
plans to offer its Office 2010 productivity suite as a free online service for
subscribers of Microsoft Live.
The online versions of Microsoft Word, Excel
OneNote and PowerPoint will lack the features available in the full versions,
but the cloud-based version will still allow Microsoft to compete in that
particular arena against Google Apps.
Perhaps most vital to Microsoft's financial health for the rest of 2009 and
into 2010, though, is the launch of Windows 7, due to roll out on Oct. 22. Microsoft
no doubt hopes that it will reverse the negative feelings associated with
Ballmer is betting that, despite the recession, there will be need among
both the enterprise and consumers for a tech refresh.
"Even if you take the assumption that [the economy] won't turn around
for a long period of time, every minute of every day we're building a pent-up
demand for IT," Ballmer said during a Q&A session following his WPC
A hint of a dark cloud on the horizon, however, may have come with a recent
survey by ScriptLogic, which suggested that six
out of 10 companies would avoid purchasing Windows 7 at the time of its debut,
citing concerns over cost and interoperability. About 34 percent of the 1,000
companies surveyed said they would be on board with the operating system by
Microsoft, however, wants Windows 7 disseminated rapidly worldwide, and
plans an aggressive campaign targeting consumers and the enterprise with massive
price cuts and promotional offers. Roughly a third of the company's revenue
comes from its operating systems.