Microsoft expects Windows 7 to boost its quarterly profit

Microsoft is expected to report a strong jump in quarterly profit helped by the successful launch of Windows 7, but it may not be enough to satisfy demanding investors and push its stock higher.

IBM, Google and Apple have all beaten average Wall Street estimates this quarter, but saw their stocks fall or gain only slightly afterward as investors looked for more indications of strength.

For Microsoft, that could mean showing evidence that companies are starting to - or getting ready to - buy personal computers after holding off on technology spending in the turbulent economy.

“I think Microsoft probably did okay, but I want to hear the commentary looking forward on that area,” said Kim Caughey, analyst at Fort Pitt Capital Group, which holds Microsoft shares. The so-called “refresh cycle”, where Microsoft’s major customers get around to buying new hardware and upgrading software, is “at the very beginning”, said Caughey.

“The second half of this year – that’s when we’ll see a meaningful uptick in businesses buying new hardware.” Wall Street is expecting Microsoft to report profit of 59 cents per share for its fiscal second quarter, up from 41 cents per share a year earlier, and revenue to rise seven per cent to $17.8 billion (Dh65.3bn), according to Thomson Reuters.

Sales will be boosted by the Windows 7 operating system, which was launched last October, and the one-time deferral of some Windows revenue from last quarter related to Microsoft’s free upgrade programme. Data from Thomson Reuters StarMine, which places more weight on recent forecasts by top-rated analysts, is almost identical to the Wall Street average, suggesting a surprise is unlikely.

Except for last quarter, when Microsoft cut the average EPS estimate by eight cents, analysts have been quite accurate in predicting its results with average forecasts within two cents of the reported number for five of the past six quarters.

Signs of a turnaround in the PC industry are apparent. PC sales rose 15.2 per cent in the last quarter of 2009, according to IDC, making up for declines earlier in the year.

Consumers powered the gains, rushing to buy new laptops and netbooks at bargain prices from the likes of Hewlett-Packard, Acer and Dell over the holiday season.

The question for Microsoft investors is when commercial PC buyers will follow suit.

 

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