Microsoft Corp is set to report a dip in earnings on Thursday, a year after the launch of its Windows 7 operating system blew away Wall Street estimates, as sales of personal computers lag expectations and Apple Inc's iPad eats away at the fringes of its core market.
The world's largest software maker, which powers more than 90 per cent of the world's computers, is still a money-making machine, but its fortunes are tied to vulnerable PC sales and investors have doubts it can replicate its dominance in the fast-growing mobile and tablet markets.
Its stock is down 2.4 per cent in the last 12 months, compared with a 24 per cent rise in the tech-heavy Nasdaq.
"Microsoft is still a juggernaut in the PC business, Windows-based machines are still selling over 300 million a year," Tim Bajarin, president of tech research firm Creative Strategies, said earlier this week.
"But they missed the smartphone revolution, and even though they were the first to really push the tablet, Apple basically redesigned it and left Microsoft in the dust."
Sales of Windows 7 are still going strong, but likely won't match the year-ago figure, which was boosted by a one-time deferral of revenue from pre-sales of the operating system, which was launched in October 2009.
Microsoft is expected to report second-quarter profit of 68 cents per share, according to Thomson Reuters I/B/E/S, lower than the 74 cents it reported a year ago.
Overall sales are expected to inch up to $19.15 billion from $19 billion a year ago, helped by the unexpectedly strong sales of the Kinect hands-free gaming system, which sold 8 million units over the holiday shopping season, above Microsoft's own target of 5 million.
PC sales, the surest guide to Microsoft's overall health, rose only 3.1 per cent in the last three months of last year, according to research firm Gartner, well below earlier estimates.
The good news for Microsoft is that business customers -- the core market for its software -- are buying new computers more readily than cash-strapped consumers, who are holding off on purchases or buying iPads instead.
That resilience of business customers helped tech bellwethers IBM and Intel Corp post positive results and outlooks over the past two weeks, helping their stocks higher.
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