* Wall Street sees fiscal Q3 EPS $0.56 vs year ago $0.45
* Sales expected to increase 12 pct to $16.2 billion
* Windows, Office franchises driving profit
* Long-term investor fears linger
* Shares down 15 pct in 12 months
By Bill Rigby
SEATTLE, April 28 Microsoft Corp is
expected to report an 18 percent jump in quarterly profit on
Thursday, as its reliable Windows and Office franchises keep
But that may not be enough to rouse its shares from a
decade-long slumber or ease fears that its dominance of personal
computing is waning.
The world's largest software company has sold a
record-breaking 350 million licenses for its Windows 7 operating
system since launching it 18 months ago, and its latest Office
suite of applications is a hit with businesses.
But even if Microsoft follows most other tech companies and
beats Wall Street's expectations -- as it has done for the last
six quarters -- there is no evidence that it will turbocharge
the stock, which trades around the same level it did 10 years
Investors fear that new gadgets, led by Apple Inc's
iPad, are the thin end of the wedge that will one day separate
Microsoft from its core customers.
The new tablets "are making a sea of Microsoft customers
comfortable using an operating system different than
Microsoft's," Michael Yoshikami, chief executive of fund manager
YCMNET Advisors, said earlier this week.
"You're going to see a migration away from the monopolistic
dominance that Microsoft had, and that's worrisome for them."
Apple's iPad, along with a handful of tablets running Google
Inc's Android system, are starting to eat at the edges
of Microsoft's domination of personal computers.
PC sales -- the most reliable indicator of Microsoft's
financial success -- fell 1 percent in the first three months of
the year, according to one research firm. [ID:nN13301394]
Long term, some see the new devices as unleashing a genie
that Microsoft may never be able to put back in the bottle.
That fear has chilled Microsoft's stock, pushing it down 15
percent in the last year, compared with a 16 percent gain in the
Despite quarter after quarter of strong results for
Microsoft -- the company racked up record sales and profit in
the last three months of last year -- investors are unwilling to
grant it the valuation they used to.
The stock is now trading at 9.6 times expected earnings for
the next 12 months. That is half the stock's 10-year average and
below the 13 times average for major tech companies.
Even Microsoft's 2.5 percent dividend yield, which lags only
Intel Corp's among big tech, is not enough to persuade
investors to change their outlook.
Although some options traders are betting on an upward swing
in Microsoft's shares after the results, past experience has
shown that even blowout results tend to be priced in before
This quarter, Microsoft is expected to post sales growth of
12 percent to $16.2 billion in its fiscal third quarter, and
earnings of 56 cents per share, up smartly from 45 cents a year
ago, according to Thomson Reuters I/B/E/S.
That is a respectable gain in a slow-moving economy, but it
may not be enough to keep its grip on the technology crown.
Apple, which overtook Microsoft in terms of market value and
quarterly sales last year, posted a 95 percent jump in
second-quarter net profit to $5.99 billion last week.
Microsoft is expected to report an 18 percent increase to
only $4.7 billion.
Two years ago, Microsoft's quarterly profit was almost
double Apple's. The last time Apple produced more profit in a
year than Microsoft was 1990.
To add insult to injury, Microsoft's languishing stock means
it may be overtaken in market value soon by IBM , the
lumbering old foe that Microsoft vanquished in the 1990s.
At the close of business on Wednesday, Apple led the pack
with a market value of $324 billion. Microsoft was a distant
second at $220 billion, with IBM close behind at $204 billion.
(Editing by Gary Hill and Muralikumar Anantharaman)