What to Watch For in Tomorrow's Microsoft Earnings

On Thursday, Microsoft (MSFT -1.96%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction that turns out to be exactly the wrong move.

Microsoft has the highest market capitalization of the tech stocks within the Dow Jones Industrials (^DJI -0.65%), but it has struggled to regain its dominance of the 1990s and early 2000s as PC era has given way to the mobile revolution. Still, Microsoft continues to work hard to try to return to its former glory. 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 quarterly report.

Stats on Microsoft

Source: Yahoo! Finance.

Will Microsoft get the job done this quarter?
Analysts are far from optimistic about Microsoft's earnings. In recent months, they've cut their calls on the just-ended quarter by a full dime per share, and they've reduced their full-year fiscal 2013 earnings-per-share estimates by $0.12. Yet the stock has held up reasonably well, rising almost 10% since early January.

Given all the bad press that Microsoft has gotten lately, it's no surprise that analysts aren't expecting much from the tech giant. Its Surface tablet, which it hoped would match up to the top tablets in the market, has failed to make a major impression, with sales of just 1.5 million units in its first five months. Meanwhile, Windows 8, which was heralded as a potential renaissance for the ailing PC industry, is now being blamed for actually slowing down computer sales.

But despite its reputation as having missed out on technological innovation, Microsoft is aiming a lot higher. The company is working hard to bolster the size of its app store, which current lags badly behind those of Apple and Google. Moreover, its coming Xbox 720 seeks not only to reawaken demand for high-end video-game consoles but also to boost the presence of the overall Xbox ecosystem to encompass all the devices it has released or plans to release in the future.

Moreover, Microsoft is going up against competitors in some promising new areas. Just yesterday, the company released its Windows Azure Infrastructure cloud-services platform to the general public, firing back at Amazon.com (AMZN -1.35%) and its cloud-services business by matching Amazon's pricing for commodity cloud services. Amazon has fended off competitors before, though, making the success of Microsoft's foray far from assured.

Perhaps the best news comes from Microsoft's partnership with Nokia (NOK -0.90%). Although U.S. smartphone sales are still dominated by Apple and Android devices, Nokia's Windows-based Lumia phones have captured much better smartphone market share in international markets. China in particular has seen substantial Lumia sales, giving investors hope that Microsoft's phone platform will find customers throughout the world.

In Microsoft's earnings report, look closely to see how CEO Steve Ballmer responds to the disappointing news on some of the initiatives he expected to do the best. Without strong leadership, even decent numbers aren't likely to push Microsoft markedly higher in the near future.

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