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Microsoft Corporation (MSFT) Q4 Earnings Preview: Surface And Windows 8 Not So Magic?

 January 23, 2013 01:26 PM

(By Rich Bieglmeier) Microsoft Corporation (MSFT) is expected to report earnings after the market closes on Thursday, January 24, 2013 at 2:30 PM - PT. Wall Street anticipates that MSFT will earn $0.75 for its fiscal 2013 2nd quarter. iStock expects the Dow and NASDAQ 100 member to report earnings that will exceed Wall Street's consensus number. The iEstimate is $0.76 –  a 1 cent upside surprise.

Microsoft Corporation develops, licenses, and supports software products and services; and designs and sells hardware worldwide.

MSFT has beat Wall Street's target 10 or its last 16 quarterly checkups, hit the target another four announcements, and for those of you keeping score, Microsoft missed twice in last four years, including last quarter. However, beat, miss, or bulls ‘eye, trading Microsoft's earnings has been frustration for the tech leader. For the last 16, the stock price has gone up eight times, by an average of 4.85%, and down 8 times with an average loss of 3.26%.

[Related -Microsoft Corporation (MSFT) Earnings Preview: What To Watch In Q2 Results?]

Heads or tails for Friday? Options traders have put their chips on heads as the number of contracts traded. Open interest for January 2013 calls for the strike prices of 27, 27.5, and 28 is 168% higher than January put open interest for the strike prices of 27.5, 27, and 26.5. Today's activity is no different as 8,995 calls and 4,687 puts have traded with the same strikes outlined above as we type. For many investors, the call/put ratio in MSFT's case would be considered a contrarian indicator and bearish for tomorrow's earnings.

[Related -Microsoft Corporation (MSFT): Good Buy or Good-Bye?]

iStock thinks the two most important items Wall Street will be watching include Windows 8 and Surface Tablet sales. UBS analyst Brent Thill thinks Microsoft sold fewer than one million during the holiday quarter. He sees something in the 500,000-600,000 range. Google Trends show the Surface Tablet running way behind the iPad, Samsung Galaxy Tablet, and Kindle during October – December 2012. Meanwhile, it is keeping company with Google's Nexus tablet with 1/27th the search volume intensity as the iPad.

As for Windows 8, there is little doubt that PC are getting hammered, HAMMERED, by tablet sales. Research firms Gartner and IDC say for the first time in four years, PC sales fell in the fourth quarter of 2012. IDC reports that personal computer sales were down dipped 6.4 % for Q4 2012 versus Q4 2011. Gartner added, "The launch of Microsoft's Windows 8 did not have a significant impact on PC shipments in the fourth quarter." Ouch. Between the two, the estimate is hardware makers delivered 90 million PCs in Q4 2012, down from 95.5 million in 2011.

Consumer research group, NPD reports since Windows 8's launch "Windows device sales have fallen 21 percent versus the same period last year" while desktop sales fell 9%.

Last year, Microsoft Corporation (MSFT) earned 78 cents for its fourth quarter. Based on slowing Q4 PC sales and potentially underwhelming Surface sales, iStock thinks 75-76 cents seems about right.



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