MSFT Microsoft Corporation

By Asa Fitch 

Microsoft Corp. is set to report fiscal third-quarter earnings after the market closes Wednesday. Here's what to expect:

EARNINGS FORECAST: Analysts surveyed by FactSet as of Tuesday afternoon expect Microsoft to report adjusted earnings of $1.00 a share, up from 95 cents a share a year ago. The company reported $7.42 billion in net income in the same quarter last year.

REVENUE FORECAST: Analysts surveyed by FactSet expect revenue of $29.88 billion, up from last year's $26.82 billion.

WHAT TO WATCH:

AZURE SLOWING: Revenue growth at Microsoft's cloud-computing division, called Azure, has slowed in recent quarters, even though it is still the fastest-growing service the company offers. Part of that is a result of Azure's success: as its size increases, so does the difficulty of posting eye-popping percentage gains. But investors still want to see healthy demand for Azure, which has helped Microsoft stay relevant in recent years as sales of the company's Windows operating system took a back seat. Analysts at UBS estimate Azure revenue grew 66% in the fiscal third quarter compared with the same period last year, down from a 76% annual growth rate in the previous quarter.

A BIGGER CLOUD: Azure is just one piece of Microsoft's broader cloud strategy, which combines software and other services into a division that is accounting for an ever-larger share of the company's overall revenues. The cloud business overall had $9 billion of sales in the fiscal second quarter, and investors are counting on it to propel Microsoft as it competes with Amazon.com Inc., the global leader in cloud computing, as well as competitors that sell software via the internet, such as Adobe Systems Inc. and Salesforce.com Inc. "There are few technology firms globally that are benefiting from business at this scale yet [are] still growing this fast," KeyBanc Capital Markets analysts said in a recent note, estimating that Microsoft's broader cloud division could account for a third of its revenues in its third quarter.

SILICON SHORTAGE: A scarcity of computer chips caused by capacity shortages at Intel Corp., the largest U.S. chip maker, has constrained sales of PCs with Windows software on them, contributing to a 5% fall in Microsoft's revenue in its fiscal second quarter. Intel expects its capacity to improve by the middle of this year, but until then, the shortage may continue to be a drag on Microsoft's results. The importance of Windows for Microsoft is decreasing as its other businesses mature, but it still accounts for about 17% of revenue, according to analysts at Bernstein Research.

Write to Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

April 24, 2019 05:44 ET (09:44 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.