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October 19, 2006

Cold comfort in Microsoft 1Q07 earnings predictions

Posted by David Hunter at 8:02 PM ET.

Now that the competitors have reported quarterly earnings and Apple and Google have done very well, speculation naturally turns to what Microsoft is going to report next Thursday (Oct. 26). Michael Paige at MarketWatch has the analyst consensus:

Microsoft Corp., the world’s largest software company, is expected Thursday (to) report that its quarterly profit came in little changed from a year ago as it continues to invest in key new and upcoming products, with revenue rising just more than 10%, analysts forecast.

Microsoft will have earned 31 cents a share for its fiscal first quarter, unchanged from the same period a year earlier, according the average estimate of analysts polled by Thomson First Call.

Revenue for the period ended Sept. 30 is projected to increase to $10.75 billion from $9.74 billion, based on the average of analysts’ estimates.

MSFTextrememakeover catalogs the recent bad news (including the latest estimates for the cost of the still unannounced Vista upgrade coupons this holiday season) and has a more disconcerting idea:

Worse, take the rumored higher R&D number (and likely negative fallout), the hit from the anticipated Vista rebate program, the likely increased costs associated with making the recent product changes to please the European Commission, rumors of heavy Xbox discounting in Japan as a last-ditch effort to try and salvage that situation, and the fact that buybacks – though aggressive – are unlikely to have secured the shares that would have been retired via the tender (and were needed to make the revised earnings guidance for the year), and there seems to be a growing risk for a relatively weak Q and more importantly, downward earnings guidance for the rest of the fiscal. Now, I don’t want to be Chicken Little, but if that happens, especially against the backdrop of AAPL and GOOG continuing to knock it out of the park, MSFT is going to reestablish itself as a laggard – both as a company and as a stock.

Stay tuned.



Filed under Financial, General Business, Investor Relations, Microsoft, OS - Client, Windows Vista

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