Microsoft Corporation (MSFT) will report Q4 results on July 19th. The Street expects:
- Revenue: $18.17 billion
- EPS: $0.62
- Q1 guide: $17.66 billion
Recently, Microsoft wrote down $6.2 billion on its 2007 acquisition of aQuantive. The write down will wipe out the consensus estimate for EPS. But since the write down is a non-cash expense, the company's cash flow will not be affected.
In Q3, Microsoft reported a strong quarter in which net revenue grew 6% y/y to $17.41 billion. The company saw continued strength across all segments. Specifically, demand for Windows 7 and Office 2010 from enterprises was resilient with a 9% y/y revenue increase in the Business Division. Server & Tools also showed robust result with revenue up 14% y/y. Windows and Windows Live revenue was up 4% y/y.
Heading into earnings, we could see continued strength in the Business Division. According to CFO Peter Klein, only 40% of corporate PC users are running Windows 7. The remaining 60% are still running on Windows XP. However, 90% of these businesses are planning to adopt Windows 7, indicating significant runway for growth as corporate upgrade cycle continues.
I note that according to a recent report by Net Applications, Windows 7 is expected to surpass XP by August. As of June, Windows 7 had 41.6% market share compared with Windows XP, which had 43.6% market share.
Beyond Q4, Microsoft's recently introduced Surface tablet makes the tablet war a bit more interesting. Despite lacking iPad's aesthetic features, Window RT-based Surface tablet has comparable specs to that of iPad.
Windows 8 Pro Surface | Windows RT Surface | iPad | |
Operating System | Windows 8 Pro | Windows RT | iOS |
Processor | Intel Core i5 | ARM | A5X |
Storage | 64-128 GB | 32-64GB | 16-64GB |
Weight (pounds) | 1.99 | 1.49 | 1.45 |
Thickness (milimeter) | 13.5 | 9.3 | 9.4 |
Screen | 10.6" ClearType Full HD | 10.6" ClearType HD | 9.7" Retina Display |
Another selling point for Windows RT is that it comes with Office 15 for productivity, compared with iPad which does not have iWork preinstalled. While I do not believe that Microsoft will be a threat to Apple (AAPL) in the near-term, investors should not forget that Microsoft does have a history of innovation and gaining significant market share in the hardware space, namely with its Xbox product line.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
