Microsoft's fiscal first quarter results should be solid amid a strong enterprise business and Windows 8.1's rollout to the channel with new devices, but those financials will give analysts about 5 minutes of relief as larger issues loom.
The software giant on Thursday will unveil its latest quarter with a new reporting structure that is designed to give more transparency on profit and revenue for the enterprise and consumer businesses.
Wall Street is expecting earnings of 54 cents a share on revenue of $17.89 billion in the first quarter. Analysts seem confident that Microsoft will hit its sales targets, but aren't so sure about earnings due to increased capital expenses. Among the wild cards for Microsoft beyond the first quarter:
- The CEO search;
- Integration challenges with Nokia;
- XBox One's reception;
- The lower profit margins as Microsoft focuses on devices;
- Can PC sales get off the mat?
Of those issues, the CEO search is the biggest issue, said Morgan Stanley analyst Keith Weiss. Weiss said in a research note:
Finding the "ideal" CEO candidate for Microsoft may prove a challenging task. In our view, the board needs to balance the requirements of: 1) a keen technology vision to sustain cloud momentum and gain share in devices; 2) proven operational skills to effectively run a >130K employee org.; and 3) strong communication skills to convince skeptical stakeholders that Microsoft is on the right strategic path.
The overall tone going into Microsoft's quarter is one of skepticism. Stifel Nicolaus analyst Brad Reback questioned whether investors will care about Microsoft's results. Reback said expectations were muted, but Microsoft probably benefited from building channel inventory for Windows 8.1 systems.
Fortunately for Microsoft, expectations are low enough for the company to deliver a few surprises. Going forward, Microsoft is going to have to resolve those nagging questions about its business and future.