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Morgan Stanley: Microsoft To Detail 'Wild Card' Plan For Nokia In Fiscal Q4 Call

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A stronger PC market and stability in enterprise operations leave Microsoft (NASDAQ: MSFT) poised to post a solid fiscal fourth quarter July 22.

Analysts expect fiscal fourth-quarter earnings of $0.60 a share, on revenue of $23.06 billion. But Morgan Stanley's Keith Weiss said the focus next week will be on the strategic plans of newly installed Chief Executive Satya Nadella.

A recently leaked employee memo from Nadella said the company seeks to "flatten the organization" in the wake of its $7.2 billion acquisition of Nokia, completed in April.

It's been widely speculated that flattening means job cuts that could be the largest in Microsoft's history, running up to 10 percent of 125,000 work force.

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Weiss, who maintains an Equal Weight rating on Microsoft, called Nokia "the wild card" for the company. "Without additional investment, unit volumes for Lumia smartphones will continue trending down, making break-even for Nokia difficult to achieve," Weiss said in a note Wednesday.

Microsoft has said it will cut Nokia operating expense by $600 million. But Weiss said increasing market share while cutting operating expenses is "difficult to achieve."

Even assuming accelerating growth for Lumia, Weiss figures the acquisition will shave $0.20 cents from Microsoft's 2015 earnings. Thus he's forecasting 2015 earnings of $2.64 a share, versus the Street consensus of $2.86.

Should Nadella go for the upper end of job cuts reported at 10 percent, Weiss figures that would save $2.4 billion in 2015 operating expense, or $0.20 cents a share. Weiss is betting the company will lay off about 5 percent of its work force, or about 6,000 people.

Microsoft traded recently at $42.57, up 0.28 percent.

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