Analysts foresee a sound quarter from Microsoft

With Microsoft slated to report first-quarter earnings Wednesday that will most likely meet Wall Street estimates, analysts already have their eyes turned to the next quarter and to Windows 2000 sales.

Microsoft Stock price from October 1999 to present.

Source: Prophet Finance

Analysts polled by First Call/Thomson Financial expect the software maker to post earnings of 41 cents a share on revenues of $5.69 billion. This compares with a profit of 38 cents a share on revenue of $5.38 billion posted in the same period a year ago.

The Redmond, Wash.-based company is set to release its earnings report for the September quarter after Wednesday's market close.

"Our expectations are for an in-line quarter predominantly because the company really had no new products out," Lehman Brothers analyst Michael Stanek wrote in recent research notes. He said that the first quarter is a "transitional" one for Microsoft and that, for the most part, investors should pay attention to the guidance that the company offers for the upcoming December quarter.

"With a terrible quarter already on the books for the PC industry, there are numerous reasons to conjecture as to what the impact these results will have on Microsoft's guidance," Stanek wrote. "We feel that while there is a chance for management to 'play it safe' by tempering expectations, with key products in place and a consumer tilted mix for the quarter, Microsoft may surprise investors for the better."

Stanek maintained his December-quarter earnings projections at 51 cents per share on revenue of $6.8 billion.

Shares of the software maker, which have tumbled nearly 57 percent for the year, on Monday fell to their lowest level in two years on continued concern about the health of the PC market.

Microsoft, which has a history of beating expectations, said last quarter that it remains guarded about near-term growth rates in business PC sales but continues to have high hopes for sales of its Windows 2000 products.

On Sept. 21, chip heavyweight Intel surprised investors when it warned that its third-quarter revenue, and in all likelihood profits, would be lower than anticipated because of slowing PC sales. The announcement sparked a slide in both the company's stock and the market overall.

Intel on Tuesday beat lowered third-quarter earnings expectations but said the outlook for the fourth quarter could be gloomy, setting quarterly revenue projections that were more timid than in the past.

Microsoft shares, which closed down Tuesday at $50.44 per share, got a surprise boost last month after the U.S. Supreme Court ruled to have a lower court hear the company's appeal in its landmark antitrust case. The high court's order was seen as a victory for Microsoft because it promises to give the company an extended opportunity to defend itself in an environment some see as more sympathetic to Microsoft. It also opens the possibility of a more favorable political climate for the company.

Microsoft in its fourth quarter reported earnings per share of 44 cents, up 10 percent from 40 cents per share for the same period a year earlier. Fourth-quarter revenues inched up to $5.8 billion from the $5.76 billion reported in the year-earlier period.

At the time, the company pointed to strong corporate sales of its Windows 2000 operating system as a major growth driver in fourth-quarter earnings. Microsoft also cited customer wins with Xerox, Motorola and Royal Dutch/Shell.