Microsoft Earnings Call to Focus on Reorg Plan (Nasdaq: MSFT)

The Microsoft earnings call today will demand clarity on CEO Steve Ballmer’s recently released reorganization plan, and what it means for investors.

Microsoft Corp. (Nasdaq: MSFT) reports fourth-quarter earnings Thursday after the close, and expectations are for solid numbers and growth – at a time when a lot of analysts are down on the stock.

Despite a significant slump in the PC market, the Redmond, WA-based company is expected to post a small uptick in earnings and revenue.

Analysts are looking for the tech giant to report earnings of $0.75 per share on revenue of $20.7 billion, up from $0.73 on revenue of $18.06 billion a year ago. Full-year earnings are projected to come in at $2.74 per share on full-year revenue of $78.6 billion.

While modest, those Q4 gains will likely be warmly welcomed by Wall Street.

Heading into the earnings release, no analysts revised estimates upward in the last 60 days, but eight did trim estimates downward.

“We believe the adoption rate for Windows 8 and Surface continues to improve,” Oppenheimer analyst Shaul Eyal wrote in a research note. “Expectations are low for Microsoft and an in-line quarter will be seen positively.”

Over the last four quarters, Microsoft has logged an average 3% year-over-year growth in revenue. The biggest boost came in the last quarter, with revenue up 13% from the same quarter a year ago.

A Few Things to Focus on in Microsoft Earnings Call

Expect plenty of questions about the recent corporate reorganization and news of a pickup in Windows 8 shipments.

  • Windows 8

An update on Windows 8 should give investors a better overall view on how well received the souped-up operating system has been. Last month’s preview of the touch enabled operating system was uninspiring and blamed in part for the serious slump in the PC market.

Indeed, much of Microsoft’s business is tethered to the performance of its Windows operating system, and Windows is closely tied to the PC market’s performance. Worldwide personal computer shipments slipped 11% to 76 million in the second quarter of 2013, the fifth straight quarter of declines. It marked the longest PC nose-dive on record.

BMO Capital Markets says business customers are not upgrading to Windows 8 due to the lack of touch interfaces on most current computers and the disappearance of the “Start” button. However, business customers have upgraded from 2001’s Windows XP to Windows 7, a move that should pad Microsoft’s bottom-line.

To fuel more interest from consumers and platform developers, Microsoft plans to push Windows 8 and the upcoming Window 8.1 upgrade set for commercial release. CEO Steve Ballmer said in June the “new norm” for the company would be faster release of Windows upgrades and more focus on devises such as smartphones and tablets.

  • Xbox , Surface Sales and Bing

Speaking of devises, Xbox 360 sales are likely to have slowed in the last quarter. But the slowdown could very well be attributed to customers waiting for the release of Microsoft next-generation console later this year.

Meanwhile, Microsoft recently cut the price of its slow to catch-on Surface RT Tablet by 30% on weak demand.

While Microsoft did land on the list of top five vendors for tablet sales worldwide with its Surface devices, sales have been sluggish. Research firm IDC reported Q1 2013 sales figures from the Surface RT and Surface Pro totaled just 900,000.

Meanwhile, worldwide tablet shipments for the period equaled 49.2 million units in the period, a whopping 142.4% increase year-over-year. Apple Inc’s (Nasdaq: AAPL) iPad led, followed by Samsung, ASUS and (Nasdaq: AMZN). Microsoft rounded out the top five.

Thanks to smaller screens, better design and the increasing desire to always be connected, tablet sales show little signs of slowing down. And for tablets users wanting full Windows capability, Microsoft’s Surface devices have an edge.

As for Bing, Microsoft claims its search engine is edgier and favored over Google (Nasdaq: GOOG). But even though the latest data from shows Bing is gaining market share (up from 15.3% to 16.9% YOY), Google holds a commanding lead at 67.1%

Microsoft Earnings: Questions Will Focus on Restructure

Although Ballmer didn’t announce the big organizational shuffle during the April-June quarter, expect lots of questions and comments on how the plan will affect Microsoft’s operations, results on certain business segments and how it will lead to higher earnings.

Hopes run high that by diversifying beyond product-based divisions, the company will be better able to address different needs within fast growing niche markets such as cloud computing and mobile.

“We are rallying behind a single strategy as one company—not a collection of divisional strategies,” Baller wrote in a companywide memo distributed in early July. “Although we will deliver multiple devices and services to execute and monetize the strategy, the single core strategy will drive us to set shared goals for everything we do. We will see our product line holistically, not as a set of islands.”

Ballmer’s aim, now in high gear, is to transform Microsoft from a software business into a devices and services company. Let’s see what he says at today’s call at 5:30 p.m. EDT.

We’re not too optimistic that Ballmer’s reorg plan – no matter what he says in the Microsoft earnings call today – will work. Take a look.

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