Microsoft will report its fiscal first quarter earnings on Thursday and all eyes will be on the Windows 8 launch next week. However, expectations for the Windows 8 launch appear to be mixed at best.
The PC industry just isn't sure what to make of Windows 8. Intel CEO Paul Otellini noted there are many form factors and it's unclear which one will win. Otellini said what hardware ultimately wins with Windows 8 may not be known for a year.
Couple Windows 8---an OS that will have a new interface and learning curve---with slowing PC sales and Microsoft's big launch has a series of unknowns. Those uncertainties will be reflected in Microsoft's quarter as well as the commentary that follows the results.
Microsoft is expected to report first quarter earnings of 43 cents a share on revenue of $12.68 billion ahead of the Windows 8 launch, according to Wall Street estimates. The fiscal second quarter, ending Dec. 31, is expected to bring earnings of 67 cents a share on revenue of $17.77 billion.
Given that jump from the September to December quarter, analysts are modeling some sales pop. But analysts remain wary.
Evercore analyst Kirk Materne said:
We believe the early feedback on Win8 is likely to be a bit mixed and demand muted until new touch-enabled hardware is shipped later this year/early 2013 – tempering any post-launch rally.
Barclays analyst Raimo Lenschow said that weak PC sales are worrisome for the Windows 8 launch:
Although part of the justification for the PC weakness is commonly attributed to restrained buying ahead of Windows 8, a major snapback in shipments from such a large decline is difficult to imagine.
Oppenheimer analyst Shaul Eyal noted:
We expect Win8 to be a solid product. Near term, we believe there is less pent-up demand than when Win7 was released with fewer touch products available at launch date. Additionally, the fact that Win8 overhauls the user-interface could stretch the product cycle acceptance by a few quarters before catching on.
Others are more upbeat. Morgan Stanley analyst Adam Holt is projecting that 3 million Surface units will sell in the December quarter. The fact that Surface has a version of Office on it works to Microsoft's advantage, said Holt.
Morgan Stanley’s May 2012 Blue Paper on tablets suggested that 61% of potential tablet users saw the ability to use Office as among the most important features to consider when purchasing a tablet, and should work to Microsoft’s benefit.
In the final analysis, the Windows 8 launch appears to be devoid of optimism---except from Microsoft executives. File this launch and the financial impact of it in the wait and see category.