By Shira Ovide
Microsoft is slated to disclose Thursday after market close the
company's financial results for its fiscal first quarter ended
Sept. 30. Here's what to keep an eye on:
Earnings forecast: Microsoft is expected to post earnings of 50
cents a share, according to the average of analyst estimates
gathered by Thomson Reuters. A year earlier, Microsoft posted
earnings of 62 cents a share. Analysts expect a drag of about 6
cents a share related to Microsoft's widespread job cuts that
started this summer and costs to integrate Nokia's mobile-phone
business. Microsoft doesn't issue quarterly financial guidance.
Revenue forecast: The company is expected to report revenue of
$22 billion, compared with $18.5 billion a year earlier. The
revenue comparison is skewed a bit because Microsoft in April
closed the purchase of Nokia's mobile-phone business, which
contributes roughly $2 billion in quarterly revenue.
WHAT TO WATCH:
--Cloud, Cloud, Cloud: CEO Satya Nadella earlier this week
pitched Microsoft's strength in cloud-based business services and
said the company is uniquely positioned to help companies modernize
their technology. Microsoft's cloud software sold to
businesses--primarily the Web-friendly version of Office, a tool
for salespeople, and its Azure online computing-power-by-the-hour
service--more than doubled to $2.8 billion, or roughly 3% of
Microsoft's total revenue, for the most recent fiscal year.
Investors are anxious to see the pace of cloud growth continue, and
they're watching for signposts of how much Microsoft's cloud sales
erode higher-margin revenue from its traditional software licensing
businesses.
--Nokia deadweight: Microsoft said it would cut roughly $1
billion from Nokia's annual operating costs by June, as the company
tries to stop Nokia from losing money hand-over-fist. Wall Street
will warmly greet any sign that the cost of merging Nokia into the
rest of Microsoft's operations is falling faster than expected. The
next Nokia problem: Sell more smartphones, fast. Microsoft's market
share in smartphones is slipping from tiny to even tinier--now
about 2.5%.
--Consumer businesses: Microsoft makes roughly two-thirds of its
gross profit from sales of software to companies. But Nadella has
said Microsoft needs its consumer products, too, in part because
they fuel demand for business offerings. Morgan Stanley expects an
improvement in demand for PCs will boost consumer sales of Windows
5% from a rough market a year earlier, while sales to consumers of
Office are expected to fall roughly 15% from a year ago. Problem
is: The more Xbox consoles and Nokia phones that Microsoft sells to
consumers, the lower Microsoft's traditionally plump operating
margins will fall. They've already eroded from a percentage in the
mid-70s a couple years ago to 65% or so.
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