Tech Check

Microsoft's Sales Pinch

Despite a rough environment for PC growth, can Microsoft deliver on earnings?

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There's a little extra pressure on Microsoft today after Intel last night brought down its global PC unit growth forecast. Intel had been saying they expected PC unit growth at around 11 percent — CEO Paul Otellini brought that down to 8-10%. At the same time, he said he expects Intel's revenue to hold up because the mix of sales is shifting toward higher-end machines.

Here's why that's particularly important for Microsoft: It's a bit more exposed to PC unit trends than Intel is. Why?

Intel has a more dominant position in the server market than Microsoft does, and servers are doing particularly well right now. So weaker consumer PC sales would tend to hurt Microsoft a bit more. Intel is now getting a significant amount of revenue help — $1 billion in revenue last quarter — from two acquisitions, McAfee and Infineon's wireless unit, which aren't closely linked to PC units. And the one big bright spot in PC sales these days — Apple — is growing sales at about four times the market average. Apple uses Intel chips in all of its products, and Microsoft doesn't get a cut.

So, looking ahead to the numbers: Wall Street analysts are looking for Microsoft to turn in a quarter with revenues up about 7.5% from a year ago, to $17.25 billion. Consensus EPS is 58 cents. Hitting those numbers might be a little harder than it looks, given that Microsoft's got a tough comp with last year's Office launch and that tough PC environment.

What does Microsoft have going for it? All signs point to a corporate PC refresh cycle that continues to be strong. With businesses buying PCs, that should help Microsoft's Windows number from fluctuating too much and should also help the business division turn in a strong quarter. Microsoft's Server and Tools unit, one of its most consistent growth stories, should also do well.

As for the smaller units: The online business doesn't seem likely to be a standout given the problems Microsoft and Yahoo are having monetizing paid search. And if Xbox and Kinect continue to do well in the consumer market that will give a little revenue lift but will also hurt margins.

Will business buyers do enough to help Microsoft shake the consumer PC doldrums? I'll bring you the latest on Closing Bell when the numbers come out.

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