Microsoft earnings cheat sheet: Vista SP1 impact; Strong results expected; Is Yahoo a distraction?

Did Microsoft keep its focus amid all the Yahoo hubbub? It may not matter given the bump from the weak dollar that Microsoft is expected to get in the third quarter.

According to Thomson Financial, Microsoft (all resources) is expected to report fiscal third quarter earnings of 44 cents a share with sales of $14.5 billion. Analysts expect Microsoft to handily top those numbers and raise its outlook for the upcoming fiscal year (2009).

How important is the currency exchange rates? Brendan Barnicle, an analyst at Pacific Crest, reckons that the weak dollar alone--goods sold overseas are cheaper and translate into higher revenue when you convert a currency like the euro to the greenback--could add $200 million to revenue and as much as $575 million.

Even for Microsoft that's real money. Bottom line: It's a safe bet that Microsoft will beat estimates. Barnicle expects Microsoft to raise its outlook for 2009. Microsoft in February projected double digit revenue growth in fiscal 2009.

Among the key items to watch:

• Chatter about Yahoo. Microsoft is likely to at least mention the Yahoo bid and reiterate that it isn't raising its offer. The worry for Microsoft shareholders is that this Yahoo overhang will last through fiscal 2009. Let's face it--Microsoft could buy Yahoo tomorrow and it would still take at least 12 months to get through the EU and other regulators.
• Client revenue (Vista, XP etc.): There are macroeconomic concerns, but PC shipments remain solid. Deutsche Bank analyst Todd Raker is projecting revenue of $4.3 billion for Microsoft's client unit and figures that estimate is conservative. The big question: Are Vista enterprise licensing picking up now that Vista SP1 has been released?
• Microsoft's business division (Office): Revenue is expected to be about $4.8 billion, flat from a year ago, said Raker. Server and tools revenue is expected to be about $3.2 billion, up 18 percent from a year ago. On the server front, analysts will be looking for data on Windows 2008 Server sales.
• Xbox shipments are expected to be 1.3 million units. The entertainment and device division is expected to bring in revenue of $1.2 billion, according to Raker.
• The online services business--the weak link in Microsoft's empire--is expected to post $903 million, up 45 percent from a year ago. This unit is the one that's most likely to be distracted by the Yahoo bid.