Weak PC Sales Could Hurt Microsoft Earnings

steve ballmer microsoft

Photo: Associated Press

Microsoft reports earnings for the second quarter of its 2011 fiscal year this afternoon. We’ll be posting analysis as soon as the release hits around 4PM ET, and live-blogging the earnings call at 5:30 as well.Analysts are expecting a decent performance, with revenue up slightly at $19.14 billion versus $19.02 billion last year, and EPS down to $0.68 from last year’s $0.74. (Microsoft’s fiscal year begins July 1 of each calendar year.)

Note that last year’s numbers are skewed by the one-time recognition of deferred revenue related to a guaranteed upgrade program from Windows Vista to Windows 7. Stripping out that one-time bump of $1.71 billion, revenue is actually expected to be up about 11% from last year’s adjusted figure of $17.31 billion, and EPS would be up 13% from last year’s adjusted number of $0.60.

The release of Windows 7 last year also helped Microsoft at retail, which won’t happen this year — Windows only sees strong retail sales in the first quarter or two after a new release. After that, it’s mostly sold on new PCs. In addition, PC sales were weaker than expected during the quarter, thanks in part to competition from tablets like Apple’s iPad.

A weak performance by Microsoft’s Server & Tools division might also give new insight into why leader Bob Muglia was tossed after overseeing years of outstanding growth in that business, which is Microsoft’s third largest after Windows and Business (which is mainly Office).

However, the company will get some upside from Kinect, which sold at least 8 million units during the quarter, and could see another nice surprise from sales of Office 2010, which wasn’t out last year.

Also interesting: Microsoft’s net income, which is expected to be around $5.92 billion, could be lower than Apple’s quarterly income ($6.0 billion) for the first time in 20 years.

Key estimates: (From Yahoo Finance and Brent Thill at UBS)

  • Revenue: $19.14 billion, $19.73 billion “high” estimate
  • EPS: $0.68, $0.73 “high” estimate
  • Net income: $5.92 billion
  • Windows+Windows Live revenue: $4.92 billion
  • Business (mostly Office) revenue: $5.32 billion
  • Server & Tools revenue: $4.13 billion
  • Entertainment & Devices (Xbox, Kinect, phones) revenue: $4.06 billion

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