Microsoft should report a solid---but largely transitional---second quarter as the big wait for Windows 8 gets underway.
The software giant is expected to report fiscal second earnings of 76 cents a share on revenue of $20.93 billion, but most of the attention will be focused on Microsoft's fiscal 2013, which kicks off July 1.
Why? PC sales have been weaker than expected and Windows sales are likely to lag. Meanwhile, Microsoft is going to see Windows sales lag as Windows 8 nears general availability sometime in the second half of 2012.
Morgan Stanley analyst Adam Holt said in a research note:
We have argued for months that Windows 8 will be GA in Q3-CY12, and our hardware team is back from Asia with data that supports this view—and that Windows 8 is likely a 2H catalyst for the PC market. We see an x86 version followed quickly by an ARM release (or concurrently) and believe Microsoft will have broader ISV support on ARM than most expect—while Microsoft will not move Office to the iOS.
Holt acknowledges that PC sales are expected to be weak for the foreseeable future. First, flooding in Thailand has led to hard drive shortages that will only get worse. In addition, PCs sales have yet to benefit from the ultrabook push.
However, Microsoft can benefit from SQL 2012 as well as cloud services, said Holt. Mobile success remains a significant wild card.
Other key data points to watch from Microsoft:
- Office 365 sales. Analysts are expecting slight revenue growth from Microsoft's business division (think Office). Contracting PC sales and the uptake from Office 365 may hamper revenue growth.
- Hyper-V adoption. A few research notes highlighted that Hyper-V, Microsoft's virtualization technology is seeing broader adoption. Hyper-V is free and can pull sales along for products in the Systems Center line.
- How big can System Center 2012 be? Evercore analyst Kirk Materne said:
Microsoft announced that the release candidate for System Center 2012, the company’s IT management offering, is now available for customers; the company did not specify either a release-to-manufacturing or general availability date for the product. System Center 2012 bundles eight management products into one suite and is aimed at the increasingly important cloud management space, and Microsoft executives noted throughout the webcast announcing the release that System Center 2012 could manage both public and private clouds for customers. Microsoft is attempting to appeal to a customer base that currently has many different systems in place, and as we noted in our recent VMWare initiation, we believe management tools for cloud (both public and private) and virtualized environments will play an increasingly critical role for IT departments going forward, particularly as more applications are distributed across various environments.
- Any color on the Windows 8 release schedule. Analysts will be listening for hints about whether Windows 8 will be on time as well as talk how the business editions of the operating system will form.
- Skype contributions. Skype will be lumped into Microsoft's entertainment and device unit. Skype should give that unit a nice boost.
- Can Xbox and Kinect save the day? Stifel Nicolaus analyst Tim Klasell reckons that Microsoft sold 8 million to 8.5 million Xbox units in the second quarter. Kinect is expected to drive revenue.