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Improving PC Sales Could Boost Microsoft Results

 April 18, 2012 10:21 AM

(By Mani) Software major Microsoft Corp. (NASDAQ: MSFT) is expected to report its third-quarter results on April 19.

Wall Street expects the company to earn 58 cents a share for the third quarter, a decrease of 5 percent from last year when it earned 61 cents a share. The consensus estimates, which ranges from 53 cents to 61 cents, has dropped from 61 cents a share expected 90 days ago.

Out of the past four quarters, Microsoft's earnings have managed to beat estimates on three occasions, while matching with Street view once. The margin of difference in earnings beat was 2.6 percent to 8.90 percent.

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Analysts, on average, expect Microsoft's third-quarter revenue to be $17.18 billion, up 4.6 percent from $16.43 billion generated in the third quarter of last year.

The Street has a cautious stance on Microsoft due to lower PC shipments on lack of demand and hard disk drive shortages arising from Thailand floods. However, better-than-expected PC shipments data and easing of HDD shortages could pacify analysts' concerns.

PC shipments have shown signs of recovery amid easing of hard disk drive constraints. On better-than-expected growth in the EMEA region, global PC shipments have grown 1.9 percent in the first quarter, according to Gartner. The results exceeded Gartner's earlier projections of a 1.2 percent decline for the quarter.

The year 2012 is crucial for Microsoft as it will see the launch of Windows 8, the beta launch of Office 15, and decide the fate of Windows Phone, which recently hit a roadblock as some of the Lumia 900 phones shipped to the United States had a software glitch, preventing the smartphone from connecting to the Internet.

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Microsoft  is led by CEO Steve Ballmer and gets a majority of its revenues from sales of Windows operating system. Windows sales have been flat in recent quarters as customers are stalling the purchase of Windows 7 for the upcoming Windows 8. This could impact sales of Windows and the Windows Live Division for the third quarter, but once Windows 8 launches, the segment could witness exponential growth in revenues.

Windows 8 could prove to be an even greater driver of multiple expansion as it enables Microsoft to break free of the PC-sale shackles and monetize the explosive tablet opportunity. Research firm Gartner expects 103 million tablets to ship in 2012 growing to 326 million units by 2015.

Investors have been largely looking past the weak PC market and near-term pressures on the Windows division as the release of Windows 8 and the launch of Ultrabooks should snap PC sales out of their funk and re-accelerate growth in the company's highest margin division.

Despite the slowdown.

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