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If Microsoft earnings disappoint, blame consumer PC sales

Analysts expect Microsoft's quarterly revenue to climb about 7 percent, a sluggish performance by the software giant.

Sluggish consumer PC demand may crimp Microsoft earnings when the software giant releases results tomorrow afternoon.

Analysts are expecting Microsoft to post earnings of 68 cents a share on sales of $17.3 billion in its fiscal first quarter, according to Thomson Financial. That would represent a 10 percent jump in earnings and a 7 percent gain in sales.

Microsoft faces slowing PC sales to consumers as well as a tough comparable quarter from a year ago--one that was fueled by the June launch of Office 2010.

"Ongoing poor PC demand, in addition to tough Office 2010 compares in the business division over the next 2 quarters, will mean that Microsoft will experience continued headwinds in its core profit drivers," writes Nomura analyst Rick Sherlund in a recent research note.

Sherlund described overall PC demand as "quite depressed," though corporate sales are stronger than consumer computer purchases, given that companies are upgrading to Windows 7. Sherlund estimates about 5 percent unit growth in PC sales for the quarter. That should translate to $4.8 billion in sales for Microsoft's Windows and Windows Live division, virtually flat from the year ago period.

Microsoft's business division, comprised largely of sales from its Office franchise, should post revenue of $5.36 billion, according to Sherlund. That'd be a 4 percent gain from a year ago.

Sherlund's first quarter estimates for the company's results fall below the analyst consensus. He believe Microsoft will earn 67 cents a share on sales of $16.9 billion.

Wells Fargo Securities analyst Jason Maynard is a bit more bullish on the company's first quarter. While he also sees weak consumer PC sales, he believes that businesses will continue to refresh their computers at a brisk rate. And he's counting on strong Office sales to businesses as well as solid revenue from Microsoft's Server and Tools division.

Maynard is estimating 72 cents for earnings per share on sales of $17.2 billion.

Expect analysts to press Microsoft tomorrow during its conference call for details regarding devices running Windows Phone, the company's latest attempt to secure a chunk of the mobile phone operating system business. They may ask too about Microsoft's rumored interest in buying Yahoo, a company that spurned Microsoft's $44 billion takeover bid in 2008.