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Microsoft Earnings Preview: Yahoo/Vista Soap Opera

MICROSOFT (MSFT)

THE software company. But it's not just Windows. Business software (Office, Server, Tools) are also a big piece of the business. Don't forget the Xbox 360 gaming console either. Dow Component.

Reports Q3 earnings Thursday 4/24 at approx. 4p- 415p ET. Conference call at 530p ET.

Microsoft
Mark Lennihan
Microsoft

WHAT WILL MOVE THE STOCK:

VISTA - Love it or hate it, consumers buying PCs this year will probably be running Windows Vista. Analysts expect strong PC sales translate directly into strong sales of Vista.

XP WON'T DIE - Many customers are clinging to Windows XP even though sales of new machines with XP are scheduled to end on June 30. This morning, Microsoft CEO Steve Ballmer hinted that deadline could get pushed back because of customer demand, especially from businesses who aren't upgrading to Vista.

SHOULD YOU CARE? Does it matter to the bottom line? It should. Fewer Vista upgrades means fewer upgrades of Office and other business software. It's good when your fiercest competitor is another product you own, but in the long run it's bad because fewer people aren't upgrading existing PCs to Vista and because it opens the door to competitors.

ARE BUSINESSES BUYING IN? - Windows (for desktop and laptop PCs) is just one slice of Microsoft's pie. How are sales of Office, Server and other software doing?

XBOX ROCKS ON - Friedman, Billings, Ramsey Group expects global Xbox 360 sales of 1.3 million. This has been an area of strength for Microsoft.

YAHOO BID - It's decision time for Yahoo . Microsoft's offer is set to expire on Saturday. This morning, Ballmer said he could walk away from Yahoo. Watch for more tough language that Yahoo has to make up its mind.

ECONOMIC IMPACT - On March 3rd, Microsoft CFO Chris Liddell said the U.S. economic slowdown hadn't affected company sales. Has that view changed? Don't forget Microsoft's very sizable overseas sales. Even if domestic results are weak, Microsoft could easily pick up the slack with international sales.

WHAT'S NEXT? - Microsoft is rarely the first company in to a new technology. However, it has an impressive track record for "getting it right" eventually and making a pile of money. How is Microsoft doing moving into virtualization, cloud computing and other hot new businesses where other firms are already raking in millions, if not billions, of dollars in sales.

ESTIMATES:

Q3 EPS down 10% to $0.44, revenues up 1% to $14.496 billion

Q4 EPS up 23% to $0.48, revenues up 16% to $15.556 billion

FY 08 EPS up 25% to $1.87, revenues up 18% to $60.178 billion

Source: Thomson Reuters

Year-ago actuals: Q3 EPS $0.49, Rev. $14.398 billion

FACTOIDS:

LAST TIME MICROSOFT EARNINGS DECLINED - It seems like it was a long time ago, but not really. The last time earnings per share fell year-over-year was the December, 2006 quarter.

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