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Microsoft Cloud Results, Nokia Key To Fiscal Q4 And Outlook

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Microsoft (NASDAQ: MSFT), set report fiscal fourth-quarter results after the market closes Tuesday, faces investor focus on pending job cuts as well as its success with cloud-based products.

Wall Street expects Microsoft to post profits of $0.61 per share on revenue of $23 billion. Year-earlier income was $0.59 per share on revenue of $19.9 billion.

Investors want to know how the company's $7.2 billion acquisition of Nokia and related job cuts will impact the company's fiscal 2015 outlook.

Bank of America's Kash Rangan noted that savings from the restructuring are to be plowed back into cloud-based products.

"As such, we believe the company will trade margins for market share," Rangan said in a note, reiterating an Underperform rating and $35 target.

High-margin software is getting increasingly de-emphasized at Microsoft in a shift to lower-margin services and hardware. How its Xbox game console and Surface tablets fared in the recent quarter, for example, will help illustrate its degree of success with the trend.

Microsoft's mobile and cloud-computing operations, which CEO Satya Nadella has heavily touted since his February appointment to the job, are a key aspect of the switch.

In the fiscal third quarter, revenue for Microsoft's cloud-based Office 365 software more than doubled while its cloud-based Azure revenue was up 150 percent.

Deutsche Bank's Karl Keirstead said the company last week launched a marketing program that will enable partners to sell Office 365 directly to customers rather than going through the company. "This should ramp up adoption even faster," Keirstead said in a note.

But Keirstead believes Azure is running into competitive headwinds from Amazon's AWS cloud service.

Keirstead maintains a Hold on Microsoft, but boosted his price target to from $42 to $44.

Worldwide PC shipments in the recent quarter fell 1.7 percent, the slowest rate in two years, according to the market research concern IDC. Forecasts had called for a drop of 7.1 percent.

Keirstead said the PC news is "a big plus" for the company's fiscal fourth quarter.

Microsoft traded Tuesday afternoon at $44.79, off 0.08 percent.

Latest Ratings for MSFT

Oct 2017Canaccord GenuityUpgradesHoldBuy
Sep 2017Moffett NathansonInitiates Coverage OnNeutral
Jul 2017CitigroupMaintainsSell

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