Microsoft (MSFT 1.83%) will release its quarterly report on Thursday, and investors have built up increasingly high hopes for the tech giant, sending shares to their highest levels in more than a decade recently. Yet as competition from Google (GOOGL 0.56%) and Apple (AAPL 2.80%) in the smartphone arena and Sony (SONY -1.23%) in the game-console business heats up, Microsoft needs to demonstrate that it can produce the earnings growth that investors want to see.

Microsoft is an icon from the PC era, with its dominant office and desktop operating-system software still bringing billions of dollars into the company's coffers. But Google has done a good job of holding off Microsoft in search, while Apple and Google have thus far won the smartphone wars, and the new Xbox One has faced its challenges against Sony's PlayStation 4. Add to that a leadership vacuum at the top, and investors are rightfully nervous about Microsoft's future. 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.

Source: Microsoft.

Stats on Microsoft

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$23.68 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Will Microsoft earnings grow faster this quarter?
In recent months, analysts have cut their views on Microsoft earnings, reducing their December-quarter estimates by $0.06 per share and making cuts of 1.5% to 3% on their fiscal 2014 and 2015 projections. The stock has kept climbing, though, rising 5% since mid-October.

Microsoft astonished many investors back in October with its impressive performance in the September quarter. The company saw sales climb 16%, leading to a 17% jump in net income. Bread-and-butter businesses like commercial licensing rose modestly, showing that the company's Windows and Office software remains in demand from business customers. At the same time, Microsoft reported strong results in promising new areas, with search advertising revenue climbing almost 50% and commercial cloud revenue doubling from year-ago levels.

Yet Microsoft faces huge uncertainties right now. CEO Steve Ballmer has said he would step down at some point this year, and the company still hasn't named a successor. Meanwhile, the company expects to close on its $7.2 billion purchase of Nokia's handset division early in the year, which Microsoft hopes will help it compete against Google and Apple more effectively in the mobile arena, both on the hardware side of the business and in operating systems. Moreover, Microsoft has struggled against Sony in the game-console business, with Sony having sold 4.2 million PlayStation 4 consoles compared to about 3 million Xbox One sales from Microsoft. Apple and Google even hope to supplant Microsoft's dominance in office software by offering alternatives for mobile devices that don't run the Windows operating system.

Still, Microsoft has some interesting strategic moves up its sleeve. Recently, Sony and Microsoft started talking about potentially having Sony offer a smartphone using the Windows Phone operating system. That would move Sony away from being exclusively a Google Android shop and could open up a new potential relationship between Microsoft and Samsung as well. In the tablet space, newer Surface Pro 2 tablets include the Windows 8.1 update, raising hopes that sales will go far better than they did during late 2012.

In the Microsoft earnings report, watch closely to see how the company's internal maneuverings are creating new opportunities for growth. By looking at each segment, you should be able to get a better sense of where Microsoft's strategic path lies, especially after the Nokia handset acquisition is complete and the company gets a new CEO to take it into the future.

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