Microsoft Corporation Earnings: Will a PC Rebound Boost Its Prospects?

Microsoft has pushed heavily into new areas like mobile devices and cloud computing, but a resurgence in PC demand could drive earnings higher as well.

Jul 21, 2014 at 12:00PM


On Tuesday, Microsoft (NASDAQ:MSFT) will release its quarterly report, and shareholders have seen the stock's price soar to levels not seen since the end of the tech boom in the early 2000s. As much as Microsoft has worked hard to answer competitive pressure from Apple (NASDAQ:AAPL) and other major tech players in the hot areas of mobile devices and cloud computing, the company still has a huge presence in the aging PC market. Although many left that market for dead, recent results from Intel (NASDAQ:INTC) show that a near-term resurgence in the PC industry could help drive growth for Microsoft and other companies with a major PC presence.


CEO Satya Nadella. Source: Wikimedia Commons.

Microsoft has been such a well-established part of the technology industry for so long that it has taken a long time for the company to execute the strategic shifts it knew it needed to make. But with help from new Chief Executive Officer Satya Nadella, Microsoft has finally started to turn the ship, and investors have anticipated that its efforts will succeed in improving the company's future prospects. Given those efforts, one short-term question investors have is whether an upsurge in PC sales could help Microsoft's legacy software business produce even better results. Let's take an early look at what's been happening with Microsoft over the past quarter and what we're likely to see in its report.

Stats on Microsoft

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$23.0 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Are Microsoft earnings poised to soar?
In recent months, investors haven't been too favorable in their views on Microsoft earnings, slashing June-quarter estimates by 10%. But the stock has nevertheless kept rising, with gains of almost 15% since mid-April.

Microsoft's fiscal third-quarter earnings announcement in April showed how strongly the company has been performing lately. On the consumer front, the new Xbox One gaming console continued to drive strong gains in sales and earnings. But Microsoft continues to rely on its enterprise customers as its biggest opportunity, and the company has built out its lineup to meet the new needs of its client businesses and keep up with the pace of innovation that efforts from Apple and other competitors previously spurred.


Source: Microsoft.

The key effort that has helped drive Microsoft's success is its emphasis on its cloud-based capabilities. The rise of the Office 365 subscription-software platform has been the most visible of those efforts, with about a million new consumer subscribers last quarter bringing its total subscriber count to around 4.4 million. As Microsoft emphasizes the ability to use Office functions across platforms and devices, the company hopes to lure more consumers toward using the cloud-based version of its software rather than buying permanent licenses outright. The benefit for Microsoft will be sustainable recurring revenue from continually updated software, rather than having to count on users to upgrade while maintaining older versions long after their initial release.

Interestingly, though, a decision might well end up adding business for Microsoft. The company stopped supporting its older Windows XP operating system in early April, which many users had held onto even through a number of subsequent upgrades. As Intel noticed in its quarterly report, the lack of support appears to have spurred a huge uptick in sales of PCs, and that in turn should help Microsoft as more newly installed operating-system and office-productivity software appears on those new machines.

Yet internally, Microsoft made a shocking move in just the past week, with the company laying off 18,000 workers. Even given Microsoft's size, the job cuts are substantial, but the move appears to be just another of the restructuring decisions that Nadella believes are necessary in order to unlock the full potential of Microsoft's future. In particular, by eliminating unnecessary layers of middle management, Nadella hopes that Microsoft can be quicker in making key strategic decisions and jump on opportunities more effectively. Given the pace at which Apple and other competitors have pushed innovation forward, Microsoft needs to speed up in order to keep pace.

In the Microsoft earnings release, watch closely for signs of PC upgrade activity from enterprise customers moving to more modern software offerings. Microsoft needs to seize the moment not just to retain its legacy customers but to cross-sell other products and services to get them fully engaged in the tech giant's future course.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Click here to add Microsoft to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Dan Caplinger owns shares of Apple. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers