Picking Apart Microsoft Expectations (MSFT)

Microsoft Corp. (MSFT) will announce its highly awaited earnings after the close today.  Analysts are expecting $0.39 EPS on $14.09 billion in revenues.  That Thomson Reuters consensus number would compare to $0.47 EPS and $14.45 billion in revenues last year.  There are many other metrics to consider here besides earnings.

Unfortunately, Microsoft faces the same challenge as every PC-maker and every tech company with a weak consumer and a weak enterprise spending environment.  While the new trend has been toward this sub-$500 PC sales, the good news is that usually these netbooks contain Microsoft Windows XP.

Traders should consider that Microsoft already pulled its full-year guidance.  Steve Ballmer and friends also said that some 5,000 jobs would be cut because of the recession, and the company has admitted that it is not immune to the economy.

It was less than two months ago that the company gave a forecast to set the expectations very low.  It saw conditions remaining difficult through at least the first half of this calendar year.  It echoed Intel and others with the belief that the recovery and growth will reset from a lower benchmark.

What we are most curious about is the company’s online growth forecast. Advertising and search will be key, and these have been weak areas for the company.  We are also still waiting to see if the never-ending search pact with Yahoo! is myth or reality.

All that being said, we have zero expectations for the company’s margins.  Currency will, of course, be a factor for its international operations.

Options traders are braced for a move of nearly $1.00 based on the earnings.  Analysts still have a $23-ish target depending upon which firms you do not include.  The stock’s 50-day moving average is $17.81 and the 200-day moving average is $21.42.

The stock was down about 7% right after its last earnings at $18.00, and shares are down 0.7% at $18.65 this afternoon ahead of earnings.  Its 52-week trading range is $14.87 to $32.10.

JON C. OGG