Earnings Preview: Microsoft’s 3Q To Gain From Higher PC Sales

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Microsoft (Nasdaq: MSFT), the world's biggest software company, is expected to report slightly lower third-quarter results Thursday, despite the slight uptick in PC sales.

Analysts polled by FactSet generally expect the Redmond, Wash., company to report net income of 58 cents a share on revenue of $17.16 billion, compared with earnings of 61 cents on revenue of $16.43 billion a year ago.

The software giant should benefit from two trends: market researchers such as Gartner (NYSE: IT) have reported global PC shipments in the first quarter rose nearly 2 percent. And companies are shifting increasingly to so-called Big Data applications, which will require transporting ever-increasing amounts of traffic.

While Microsoft dominates the PC sector, upgrades and acquisitions of other software companies over the years including Great Plains, Fast Search and Transfer and Videosurf have upgraded its reach into the enterprise market.

Last year's $8.5 billion acquisition of Skype also moved it into the voice communications sector.

Here are some Microsoft key points.

How will the earnings match expectations? Usually, Microsoft reports results slightly above estimates, so a report above 58 cents a share, or $4.86 billion, might not be unexpected. A revenue shortfall, below $17.16 billion, though, would be a big surprise given market optimism.

What's the fourth-quarter forecast? What kind of forecast will CEO Steve Ballmer and CFO Peter Klein give in their commentary? Besides discussing PC shipments and prospects for Big Data, will they mention more about Windows 8's formal release, timing and sales into the smartphone market, where Finland's Nokia (NYSE: NOK) is essentially betting the company on it to compete against the iPhone family from Apple (Nasdaq: AAPL), the world's most valuable technology company.

What about cash? Microsoft reported cash and investments exceeding $51.7 billion in December, so the question will be to see much that rose.

Microsoft could boost the dividend beyond the current 20 cents a share, which was boosted last year from 16 cents. Or, as happened in 2004, the company could declare a special dividend of $3 a share and also mount a huge buyback.

Chances are that such as giant step won't be taken, though, but conceivably Microsoft might eye some deals, such as selling its Bing search engine to Yahoo (Nasdaq: YHOO) for which it provides assistance, acquiring IP from distressed companies such as Research in Motion (Nasdaq: RIMM) which have said patents are for sale, or acquiring other companies outright. last week, Microsoft paid online service AOL (NYSE: AOL) $1.1 billion for patents.

Microsoft shares, which closed Wednesday at $31.14, down 30 cents, have risen 20 percent in 2012 and 24 percent over the past 52 weeks. The company's market capitalization is $261 million.

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