Windows 8 Looms Large on Eve of Microsoft Earnings Release
As Microsoft braces to disclose earnings tomorrow for its fiscal quarter ended Sept. 30, analysts this week have lowered expectations with some fearing the software giant could miss consensus estimates that have already dropped.
Analysts are forecasting a year-over-year revenue decline of 5.3 percent totaling $16.45 billion, Forbes reported Monday (citing Zacks Investment Research), while earnings are expected to drop 16.2 percent or 57 cents per share, down from 68 cents per share last year. Prior to lowering expectations, analysts were forecasting 60 cents a share.
Longtime Microsoft follower Rick Sherlund, an analyst at Nomura Securities, told CNBC Monday that he believes revenues could be off by 6 to 7 percent, though the company could report a 1 percent increase based on deferred Windows 8 revenue.
The culprit is worse-than-expected PC sales, which plummeted 8.6 percent in the third quarter, according to IDC, a much sharper drop than the 3.8 percent decline the market research firm had predicted in August. Looming large over Microsoft and its partner ecosystem is next week's launch of Windows 8.
Yet despite short-term pessimism and some wondering if Windows 8 is doomed, Sherlund believes the coming quarter and perhaps the one after that will be rough ones for Microsoft, but ultimately Windows 8 will take off next year once Office 2013 ships. "There's a whole new re-platforming going on that will deliver a lot more functionality over the next six-to-12 months," Sherlund said. While Windows 8 and the new Modern UI will require a learning curve, Sherlund noted that the Apple iPad did, too.
"There is some disruption coming. People are going to have to spend a little time learning it," Sherlund said. "As you begin to see the TV advertising, it could be fairly seductive when you see the touch-based devices and the form factors are fairly creative. Ultimately, the story revolves around more functionality for these mobile form factors."
Sherlund expects Microsoft will see resistance from users who won't take an initial liking to the new Window 8 Modern UI (formerly known as Metro), much like the backlash over the Office Ribbon introduced in Office 2007. "People hated it. Now it's one of the most loved things in Office," he said "People hate change on a work utility like this."
While Sherlund has a point, it bears noting that some people still despise the Ribbon in Office and the new Windows experience is a much more jarring change than the Ribbon. Nevertheless, he warned the coming quarter will be challenging for Microsoft. "I think it's going to be a slow ramp given the volumes we are likely to see in Q4."
What are your predictions about how users will react to Windows 8? Drop me a line at [email protected] or leave a comment below.
Posted by Jeffrey Schwartz on October 17, 2012