Microsoft will report quarterly earnings after market close on Thursday and no one is expecting the company to blow it out of the water with huge profits.
Analysts on average expect Microsoft to report revenues that increased about 3% to $US21.1 billion.
But they expect profits to slide to $US0.51 from the year-ago $US0.68, the biggest drop in profits in years. They project the drop because of a few things:
- Unfavorable comparisons with last year’s foreign exchange rates (“headwinds”), which all US global companies are facing;
- A dip in sales of PCs, which hurts Windows sales;
- The shift from selling high-margin software to the cloud, which is less profitable upfront because people or companies pay for the service over time.
- No more help from the end of support for Windows XP, which gave the company a big boost last year as businesses rushed to upgrade their ageing computers.
Most analysts believe in the long-term vision of the company, shifting to mobile with software that works well on Android and iOS, grabbing enterprise customers as they move to the cloud.
But the transition from Microsoft’s classic cash-cow businesses to new its new cloud apps and business model is expected to be bumpy. In fact, last quarter, Microsoft CEO Satay Nadella warned the Street not to expect huge leaps in revenue and profits for the rest of the year.
And the Street has been offering conflicting advice to investors lately, with some saying its time to sell Microsoft stock, which is down since its high of nearly $US50 in November but is still trading at about $US43. Others agree that Microsoft is in a rough patch, but say it won’t last long and investors should hold the stock.