Microsoft's Earnings Preview: Looking Through Windows 8

Tech giant Microsoft MSFT will report first quarter earnings after the market closes on Thursday. The consensus analyst estimate is for an earnings per share figure of $0.56 on revenues of $16.42 billion. The majority of analysts have a “Buy” or better rating on the stock, and price targets as high as $40 per share. Shares of Microsoft closed at $29.59 on Wednesday, up 0.3%. Microsoft continues to be an interesting name for investors, but perhaps not because of the upcoming report. Last quarter saw an unusual development for Microsoft -- the company reported a loss. The loss was primarily due to the ill-fated acquisition of aQuantive, an online advertising company that ultimately failed to work out for the Windows-maker. So, this earnings report ought to be interesting, as investors would look for a return to solid profitability. Yet, investors might expect disappointing sales given the recent performance of some of Microsoft's key business partners. Notably, Dell DELL and Hewlett-Packard HPQ have disappointed investors tremendously in recent weeks. Hewlett-Packard has been struggling for quite some time, and with CEO Meg Whitman attempting a turnaround, investors might not be able to fully tie its stock results to Microsoft. Intel INTC has also been beaten down, tumbling on Wednesday after reporting earnings on Tuesday. So given the poor showing of some of the personal computer hardware makers, will investors be predisposed to fade Microsoft's earnings this afternoon? With the imminent release of Windows 8 on October 26, probably not. With Windows 8, Microsoft is cutting its tether to the desktop PC. According to reviews by CNET and The Wall Street Journal, Windows 8 is designed to be a single operating system for all platforms, whether desktop, tablet, or notebook. “Windows 8 introduces the lapdesktabbooktop,” writes Seth Rosenblatt, senior editor at CNET. “Whatever you want to call it, Windows 8 makes desktop computing portable by unifying the operating system across devices.” Windows 8 is designed specifically to work with touch screens. Critics say that it may be confusing for consumers who are used to using a mouse to navigate around a computer screen. But, given the rapid diffusion of smartphones, which use touch screens exclusively, this argument doesn't seem to hold water. In fact, news reports state that there are now one billion smartphones in use around the world. If that is the case, touch screens can't be that hard to figure out. The woes of PC makers Dell, HP and chip maker Intel do not necessarily foretell the outlook for Microsoft. Even if the third quarter numbers are disappointing, if investors are willing to look ahead, Windows 8 could firmly establish Microsoft's position as the leading operating system across all devices.