SEATTLE Investors will be looking for signs from Microsoft Corp. (MSFT.O) of a strong holiday quarter for Xbox 360 video game consoles and new computers loaded with Windows Vista when the company reports results this week.
The world's largest software maker posts quarterly results on Thursday and investors expect the company to get a boost from the continued adoption of new versions of Windows and Office as well as a solid performance at its video game unit thanks to the release of the blockbuster game title, "Halo 3."
The shares are up 8 percent over the last month -- outperforming the Dow Jones Industrial Average, Nasdaq and S&P 500 indices -- and 25 of 34 analysts covering the company have a positive rating on the stock.
For its fiscal first quarter ended in September, analysts, on average, forecast Microsoft to earn 39 cents a share on revenue of $12.57 billion, according to Reuters Estimates.
"People are more optimistic on Microsoft's big business -- Windows -- because of recent PC numbers," said Morningstar analyst Toan Tran.
Market research firms Gartner and IDC said last week that worldwide personal computer shipments grew 14.4 percent and 15.5 percent, respectively, in the July-to-September quarter from a year earlier, signaling healthy PC demand.
Leading chip maker Intel Corp. (INTC.O) also delivered a bullish outlook for PC sales in the current quarter.
That bodes well for Microsoft's mainstay Windows and Office businesses, which account for more than half of the company's revenue and nearly all of its profit. It released new versions of Windows and the Office productivity suite earlier this year.
It also quells some concerns about poor adoption of Windows Vista, which were fanned when the company said it would delay a scheduled transition to the new operating system and keep selling Windows XP until June 2008.
Analysts are expecting next year's release of Microsoft's first major update of Windows Vista, known as Service Pack 1, to spur corporate customers to upgrade operating systems.
"We would love to see some more demand on the business side as opposed to the consumer side, because it shows that businesses are still spending but also the margins are better," said Kim Caughey, a senior analyst at Fort Pitt Capital Group, which oversees more than $1 billion, including Microsoft shares, for clients.
Microsoft's entertainment and devices division is looking to make its first annual profit after six straight years of losses, and its December quarter generates twice more revenue than any other quarter of the year.
So far, the outlook seems rosy. "Halo 3," the latest installment of Microsoft's flagship shooter game franchise, has topped $300 million in sales since its release on September 25 for a game that Morningstar's Tran estimates cost $25 million to make and $10 million to market.
Consumers also purchased Xbox 360 consoles to play the highly anticipated "Halo 3." U.S. Xbox 360 sales topped rival game machines like Nintendo Co. Ltd.'s 7974.OS Wii and Sony Corp.'s (6758.T) PlayStation 3 in September, according to market research firm NPD.
"I don't think I've heard a negative thing about 'Halo 3,' but the question I have is whether it's going to be sustainable for Christmas or if this was a one-time boost," said Caughey.
Analysts are forecasting Microsoft's fiscal second quarter to come in at 44 cents a share, an increase of nearly 70 percent from a year ago, according to Reuters Estimates. Wall Street is also calling for a 24 percent rise in second-quarter revenue to $15.6 billion.
Microsoft's online services group, which has lost money for four straight quarters, could get a revenue lift from six weeks of sales from aQuantive, the digital advertising company that Microsoft bought for a record $6 billion in August.
AQuantive, the company's largest-ever acquisition, is Microsoft's biggest commitment to building an online advertising powerhouse to compete with Web rivals Google Inc. (GOOG.O) and Yahoo Inc. (YHOO.O)