Microsoft (MSFT) Posts In-Line Numbers; Analysts More Focused on Skype, Win8

Microsoft (Nasdaq: MSFT) shares are trading relatively flat Friday morning, following its first-quarter performance report issued Thursday.

Earnings in the quarter were 68 cents per share on revenue of $17.37 billion, tepid when compared with earnings of 68 cents per share and revenue of $17.25 billion expected by analysts. Earnings were up 10 percent from last year, while revenue moved just 7 percent higher.

On the report, analysts chine in:

• Goldman Sachs commented that "upside on the top line was once again driven by the Microsoft Business Division, which has now posted upside to consensus for five of the past five quarters."
  
  Looking ahead, Goldman is now modeling for the incorporation of Skype, which it believes will deliver about $400 million to Microsoft's fiscal 2012 revenue. Microsoft said FY12 expenses will also increase by $600 million from the Skype acquisition. Goldman has trimmed its gross margin (GM) outlook for the second-quarter of 2012 from 77.0 percent to 73.5 percent, and FY12 from 77.9 percent to 76.1 percent.
  
  Goldman cut its FY12 EPS estimate from $2.82 to $2.73. The firm remains Neutral on Microsoft, with a $29 price target.
  
  
• Wells Fargo emulated Goldman for the most part, commenting, "we believe the stock is largely pinned to the market until Windows 8 is released and/or Windows Phone shows smartphone traction. We think multiple expansion is contingent on the company making demonstrable inroads in mobile computing."
  
  Wells is anticipating the release of Windows Phone 7-based Nokia (NYSE: NOK) snartphone offerings, and what kind of response they receive.
  
  The firm is assuming 1.6 percent growth for Windows, with Server and Tools moving 12 percent higher in fiscal 2012. Concluding, Wells said, "We think OSD will continue to tread water until the integration issues are worked out with Yahoo. Finally, we think this should be a good holiday quarter for EDD and are assuming 12% growth inclusive of Skype." The firm has a Market Perform rating on Microsoft.
  
  
• Collins Stewart notes that guidance ex-Skype was in-line with expectations, while inclusive of Skype, Microsoft's outlook was a little light. Collins comments, "There was nothing to get excited or overly concerned about in the report, and sentiment could finally begin to improve with continued progress in PC's, any momentum around Windows Phone 7.5, and anticipation around the Windows 8 launch in 2012."
  
  Collins rates Microsoft a Buy, with a $33 price target.
  
  
• Deutsche Bank issued some commentary looking forward for Microsoft. Deutsche continues to believe PC sales, particularly in domestic markets, will be weak, but said, "we believe that MSFT is positioning itself in the right direction to bridge the competitive gap in the faster growing tablet and smartphone space."
  
  Continuing, "Early reviews of Windows 8 have been positive and the availability of Windows applications on a tablet form factor could make Windows 8 tablet a formidable alternative to iPad and the Android tablets." Deutsche rates Microsoft a Buy, with a $31 price target.

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