Tomorrow afternoon Microsoft will report its fiscal second-quarter financial performance, detailing how it fared during the critical holiday season. The company is working to revamp its key operating system, become an OEM, and grow its mobile presence. That confluence of efforts makes tomorrow’s report quite important.
On the mobile front, Nokia will report in the a.m. its sales of Lumia handsets. That will set the tone early for Microsoft. A low number could indicate flagging consumer interest in Microsoft products, something that could drag down its earnings and thus its share price.
Windows OEM revenue and Surface revenue will be the main drivers of investor sentiment, provided that the rest of Microsoft continues “at pace” with past performance. By that I mean I don’t expect Azure to perform so well, or so poorly, that it causes waves. We expect growth. The same goes for Office and so forth.
We already have a good handle on Xbox: More than 3 million sold units in the quarter, so whatever Microsoft discloses will be in keeping with current thinking.
Windows OEM revenue will toss light — or shade, depending — into the state of the larger PC market. Estimates have its contraction for the quarter in single digits, so OEM incomes of that sort for Microsoft could mimic that decline.
And then there’s Surface. Microsoft hardware projects have three thrusts (supposing the Nokia purchase goes through as expected): smartphones, consoles and tablets. The tablet element is the one most directly tied to Windows itself making it the most important, arguably.
Microsoft will break out a Surface revenue number in its report, and if past is any indication, will provide some general guidance on sales. Inventory for Surface is just now creeping back into online channels.
That crunch lasted for at least a month, and can be viewed in two different ways: Undersupply, or over demand. Of both, but you get the gist. Provided that supply was so tight, whatever Microsoft thought it could sell in terms of Surface the company did in fact sell, so the revenue number we’ll see will in fact help us understand its mind.
To refresh, after the company’s fiscal first quarter (that’s calendar Q3, if you are not keeping score), the company did not provide Surface revenue guidance for the fourth quarter. I made up a few numbers that we could use instead of official projections to get our mind around Surface revenue in the quarter:
I think that $600 million will be the absolute lower bound of “not terrible”; $800 million will be solid; and a $1 billion tally will be a win. Your move, Microsoft.
I think that those numbers should be bumped up by $100 million apiece, given what we know about inventory shortages.
The report could also shed light on the CEO hunt, something that is more than likely to come up during the post-report call. Strap in, this report card is an important indicator of Microsoft’s performance as the new company it wants to become.
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