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Microsoft Corporation (NASDAQ: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 (NASDAQ: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.

Source: Microsoft Q4 Earnings Preview: Expect Robust Results Amid The Corporate Upgrade Cycle