Q4 Preview: Microsoft (MSFT) Looks to 'Kinect' with Strong Numbers, Analysts Mixed

Shares of Microsoft Corporation (Nasdaq: MSFT) are trading just about flat Thursday heading into the tech giant's second-quarter 2012 report.

After the market closes, Microsoft is expected to report earnings of 76 cents per share on revenue of $20.93 billion. Earnings would be a slight drop from 77 cents per share reported in the same period last year.

Shares of Microsoft gained 5.1 percent through the quarter to $25.96 at the end of December. Shares are up 8.6 percent in 2012 so far, but ended 2011 down 4.5 percent.

Last quarter, Microsoft reported its Windows division revenue increased 2 percent from the same period the year before. With this next report, investors are likely to keep an eye on how that unit is doing on several accounts, one of which is Thai floods disrupting some PC sales, and the other is the wind-down of Windows 7 upgrade cycle in anticipation of Windows 8 coming out later in the year. Microsoft may discuss both on the call later.

Microsoft will also be including Skype results with the current quarterly report.

Data from Bloomberg has 27 analysts with a Buy on Microsoft, 13 at Hold, and 1 with a Sell rating. The Street's price target average is $31, with a low of $26 and high of $34. Microsoft has traded within a range of $23.65 to $29.46 over the last year. For some perspective, Microsoft stock has only been above $30 for a few trading sessions the last 2-years, and not much more over the last 10.

Analyst Comments

• Wells Fargo is looking for earnings of 75 cents per share for Microsoft, with revenue of $20.88 billion. Both numbers are slightly shy of the Street. The firm commented, "Although we believe that Microsoft has some potential catalysts in the year ahead as we gear up for Windows 8 and Nokia brings the new Lumia Windows Phone to the US, we think that the PC weakness offsets the potential upside from those products this year. We think that PC underperformance is largely expected, and neither the print nor the guide will have much impact on the stock."
  
  Recently lowered is WWL growth, from a positive 1 percent prior now to a minus 4 percent expectation. Also, PC unit growth of 2.5 percent to 3.0 percent is modeled.
  
  
• Goldman Sachs sees earnings of 75 cents per share and revenue of about $20.8 billion. Goldman sees Windows numbers coming in below expectations, and Microsoft to model a 3 percent to 5 percent decline in PC shipments, compared with IDC data showing a 0.2 percent drop.
  
  Goldman's key risks: "Downside risks to our view and price target include a deceleration in PC shipments, the commercial PC refresh rate, and Windows server shipments; upside risks include the successful release of Windows 8."
  
  
• BGC Partners sees revso f $20.65 billion and earnings of 78 cents per share. BGC sees PC weakness being partially offset by stronger Xbox sales.
  
  On Windows, BGC comments: "While the company set multiple records in its last fiscal year, we see the current fiscal year posing a leaner environment for positive upside surprises as the Windows 7 / Office2010 upgrade cycle starts to age. We still see activity from the corporate refresh cycle driving results but do not expect conditions and demand in the consumer PC market to meaningfully change until the release of Windows 8."
  
  BGC is also bullish on the prospects for Microsoft's Kinect, which has helped to sell more Xboxes and will be coming out for the PC in February. Overall, Microsoft is said to be "quietly" bridging the gap between consoles and PCs.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Microsoft's past performance at Streetinsider's Microsoft's Income Statement.

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