Microsoft's Q3: Five things to watch

Microsoft's Q3: Five things to watch

Summary: Microsoft is desperately trying to look hip, but corporate IT pays the bills. The third quarter will be all about the enterprise.


Microsoft's fiscal third quarter results are largely a warm-up act as Windows 8 and Office 15 idle on the runway, but enterprise sales are expected to bolster the financial picture.

Wall Street is expecting Microsoft to report third quarter earnings of 57 cents a share on revenue of $17.17 billion.

Here's a look at the key themes to watch:

  1. Enterprise results: While everyone is busy talking about Windows 8, Windows Phone and Xbox Live repeat after me: Microsoft is an enterprise technology company. Sure, Microsoft is desperately trying to look hip, but corporate IT pays the bills. Server and tools and Microsoft's business division account for 58 percent of revenue. SQL Server and System Center should fuel results. Corporate demand in EMEA as well as the U.S. were healthy, according to Morgan Stanley analyst Adam Holt.
  2. PC sales: PC units and revenue were better than expected in the quarter and even though the growth is anemic the results could have been worse. As a result, analysts are relatively upbeat about Windows and Office sales. Wells Fargo analyst Jason Maynard said in a research note: "Applying the revised 1.9% growth reported by Gartner to our forecast would cause Windows/Windows Live revenue to come in about $100-200MM higher than we have modeled assuming consistent unit pricing."
  3. About those Nokia sales: Nokia said that it sold 2 million Lumia devices. It's unclear how those units impact Microsoft, but analysts expect a good bit of Windows Phone chatter.
  4. Kinect: Kinect for PCs should be an interesting revenue driver for 2013, said BCG analyst Colin Gillis.
  5. More online losses: Yes, Microsoft will lose money in its online unit. What else is new? The big question is whether the software giant can pare those losses. Don't hold your breath.

Here's a look at what Microsoft projected for its third quarter back in January:

Topics: Windows, Banking, Enterprise Software, Microsoft, Operating Systems, Software

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  • A lot of us are waiting on Windows 8...

    I think a lot of consumers are waiting to make a PC purchase until Windows 8 comes out. Hopefully that will be soon...
    • Yeap, that all I've been hearing...

      When's windows 8 coming out. Can't go to the pub or a BBQ without this topic coming up. Everyone's talking about it. I caught a cab the othe day, the driver started going on about...;-)
      Richard Flude
      • Don't you mean when you were driving the cab the other day

        you started going off to the passenger about Windows 8?

        Now you know why I gave you such a small tip.
        William Farrel
  • My predictions...

    Profit will come from office and windows as it always has for MSFT.

    Impressive revenue growth for other divisions will be chatted about, profits will remain disappointing. Profit growth will remain inline with PC growth (ie disappointing). Ballmer will gloss over, rehashing the old "great products in the pipeline speech" that has been a staple of the past decade.

    MCSEs will swoon.
    Richard Flude
    • And haters will hate

      People like you who swoon over Apple will compare dollar amounts and proclaim that MS sucks because they aren't as profitable as Apple, ignoring the fact that a few short years ago, Apple wasn't as profitable as MS. That didn't seem to count for anything back then, though.

      Meanwhile, life goes on and everyone who isn't heavily invested in MSFT will continue to live much as they had the minute before these results were released. Those using MS products will continue to be happy with them. Those using Apple products will continue to be happy with them. And people like you will continue to be very upset that people like me dare to be happy with the products I've purchased from both these fine companies.

      • Now you see why the bloggers asked ZDNet

        not to put a rating system on their blogs, like they did on the responses

        Can you imagine an entire article "disappearing" :)
        William Farrel
      • Exactly the point

        MS profitability is going nowhere, the competition is - and in only a few years!

        Yet still they apologise for MS's performance (or lack of).

        Surprising number of "happy" MS customers are looking at alternatives.
        Richard Flude
      • you only wish that where the case, Richard

        but it's a free country, you can say whatever you want, even if it's wrong :)
        William Farrel
      • The MCSE often uses the work "wrong"...

        Sadly I'm not sure they know what it means.
        Richard Flude
      • Do you feel sorry for MS's profitability?

        "MS profitability is going nowhere"

        Poor MS. They only make a few billion $$$/year in profit. To have that year after year after year after year after year after year (you want me to keep going?) is not a bad thing. Revenue keeps growing, their sales keep growing, their profits are the envy of nearly every other company, and they keep introducing products that people keep buying.

        "the competition is"

        To be more accurate: Apple is. Apple is a huge success story, there is no doubt. To suggest that MS sucks because they are being beaten by the most successful company of the millennium is like saying Richard Flude sucks because Linus beat him for the Millennium Technology Prize. Do you need me to list the companies that would kill for MS's revenues, profits, and market cap? I'll start with just one:
        - Red Hat

        "Yet still they apologise for MS's performance"

        Apologize for what?
        Q2FY12: Record revenue
        Q1FY12: Revenue up 7%
        FY11: Revenue up 13%, net income up 23%

        Once again, apologize for what? That Apple is beating them? Sure, but if you demanded an apology from every single company that Apple is beating, you'll need to get an apology from every single company in the world. You let me know when you are done. Why don't you start by getting an apology from every company that MS is beating? That is a slightly smaller list but I suspect that will still take you a few years to go through.

        "Surprising number of "happy" MS customers are looking at alternatives."

        If you go based on marketshare, perhaps. Then again, if we go based on marketshare, a surprising number of "happy" Apple customers are looking at alternatives to iPhone and iPad. Where is your apology for Apple? The truth is that Windows sales are growing. Not shrinking. Growing. Same with iPhone sales. Same with iPad sales. Good news all around.

        The only one who seems to be upset is you. I wonder why?
  • Microsoft's Q3: Five things to watch

    [i]Microsoft is desperately trying to look hip[/i]
    They are? When did this happen? Microsoft has always been Microsoft, even with the Xbox, Kinect, and Windows Phone 7. They earned a reputation with their gaming platform, that's not trying to look hip that's getting customers to buy your product. Poor wording on your part.
    Loverock Davidson-
    • Roll the tape

      Unfortunately for your thesis, there are reports documenting when Microsoft had advertising campaigns aimed at making it hip. (It went about as well as when I, or anyone, starts acting cool.) It was the journey to seek the Miles Davis that led to Jerry and Bill digging them churros. Not cool.

      Does the damning accusation of trying to be hip, found in a few lines of one blog on one day when the mission was to report analyst projections of quarterly results, matter? No.

      Well it shouldn't matter. Because were it to matter, one is at risk for slippery sloping to churro road trips with the standup.

      (And... what's the deal with these Doritos taco shells. What, gas is so expensive that I can't afford the trip to a taco stand AND the convenience store? And just what makes those stores so convenient, if I still have to drive? Maybe I pass the convenience store on the way to the taco stand. No thanks to your Doritos taco shell. I got a bag in the car. [Hold for laughter or crickets.] But. Those churros are looking pretty tasty. [Pause] Good night!)
    • I agree

      Microsoft is simply trying to do what every other company out there is trying to do: profit. However, it is important for some to tarnish what will almost certainly be another incredibly profitable quarter by setting up a strawman.

      "MS failed because they tried to look hip and I don't believe they succeeded."