Microsoft's CEO Satya Nadella is finding a surprising fanbase among developers for his concerted push to forge partnerships and expand the cloud ecosystem. But getting investors excited largely depends on limiting the damage elsewhere.
In his third earnings report since taking the reins from longtime chief Steve Ballmer in February, Nadella will surely tout his progress in pushing Microsoft's cloud business via a host of new deals and products.
That unit accounts for only about 5 percent of revenue.
Microsoft remains saddled with an aging software licensing business and a market-lagging mobile unit, highlighting the challenges Nadella faces in his effort to reignite overall growth. It's a theme that will be on prominent display in the company's report after the closing bell Thursday.
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"We are generally positive on the direction and efforts from the new CEO," BGC Partners analyst Colin Gillis wrote in an Oct. 14 report. "But mention that the hard work of reorganizing the company and building traction in the mobile landscape lies ahead."
Gillis has a hold rating and $49 stock price. The shares fell 1.1 percent on Wednesday to close at $44.38. They were higher in premarket trading Thursday. (For the latest price, click here.)
Analysts are expecting the Redmond, Washington-based software maker to report a 20 percent decline in fiscal first-quarter net income to $4.1 billion, or 50 cents a share, from $5.2 billion, or 62 cents, a year earlier, according to a Thomson Reuters survey. Revenue is expected to increase 19 percent to $22 billion. The drop in profit reflects, in part, a surge in sales and marketing costs.
Licensing sales in Microsoft's consumer device business is declining, while its commercial licenses for flagship Windows products is hardly growing.