Windows 7 and Microsoft's new search engine, Bing, will be under close watch when the company reports its financial earnings this week.
Ahead of the results announcement, financial analysts have highlighted Windows 7 and Bing as reasons to be cautiously optimistic about business growth at Microsoft despite the continuing uncertain economic climate.
Microsoft's Windows business, which still provides the bulk of its revenue, has been taking a hit from netbooks, which have cut into traditional PC sales. However, Gartner's outlook for the PC market, released last week, was better than expected and therefore bodes well for Windows 7's release in October. Gartner had expected a 10% year-over-year decline in PC unit shipments for the second quarter, but ended up estimating a 5% decline instead.
“We expect [Windows] Client sales to be in line to slightly better considering better-than-expected PC unit shipments,” Sid Parakh, a financial analyst with brokerage firm McAdams Wright Ragen, wrote in a research note.
Still, netbooks, where Windows faces greater competition from Linux, could continue to be a sore spot for Microsoft until Windows 7 is released in October, and even thereafter, analysts said.
Analysts from several firms — including McAdams, JP Morgan and Collins Stewart — expect Microsoft to meet or slightly exceed analysts' expectations for the quarter, which call for $14.2 billion in revenue and 37 cents in earnings per share.
They expect some revenue to be deferred to the December quarter, or later, because of Microsoft's Windows 7 Technology Guarantee Program, which allows people to purchase PCs now with the right to upgrade to Windows 7 when it becomes available. Microsoft can't report that Windows 7 revenue until the upgrade occurs, which will be at least after the software's Oct. 22 availability date.
Still, even the deferred revenue is not expected to drag down Microsoft's results, analysts said.
Bing, meanwhile, could potentially give a boost to Microsoft's online services business, which has been flat or losing money for the past several years. Bing has received positive early reviews and taken some market share away from Yahoo in the less than two months since it was released, according to results from comScore and StatCounter.
Bing showed good initial traction with an 8.4% share of the U.S. search market, wrote Goldman Sachs analyst Sarah Friar in a research note. “With this, Microsoft has reversed the trend of market share loss that it has been experiencing in search, which we view as constructive and expect the company to build on,” she wrote.
Analysts more broadly are looking at tech company results this quarter for signs that the industry is recovering from the beating wrought by the recession.
Most companies seem to be doing slightly better than they have been, if recent results and the outlook for the second half of the year from companies like Intel and IBM are any indication, but the economy does not appear to be out of the woods yet.