The world's best-known software maker posts its quarterly earnings this week, as investors worry about whether Microsoft Corp. 's foray into mobile computing can offset its traditional – and declining – desktop software business.
Microsoft announces its 2014 fiscal first-quarter results after market close on Thursday. On average, analysts expect the company to post revenue of about $17.8-billion (U.S.), and earnings per share of about 55 cents.
Microsoft's latest earnings results come at a time of significant upheaval, both for the company and the wider technology industry. In late August, Microsoft chief executive Steve Ballmer announced he will retire from the company within the next year. Mr. Ballmer has run Microsoft for 13 years, and it is still unclear who will ultimately replace him.
Microsoft is also in the middle of closing one of the largest and most significant transactions in its corporate history. The company is paying more than $7-billion to buy Nokia Corp.'s devices and services business. The move marks the boldest attempt yet by Microsoft to catch up with rivals such as Apple Inc. and Samsung Electronics Co. Ltd. by developing its own line of mobile hardware.
Since turning its attention to mobile computing, Microsoft has made some modest gains in the sector. Windows-based smartphones now account for a larger share of mobile devices in the U.S. than BlackBerry, moving Microsoft into a distant third place behind devices powered by Google and Apple software. The company has also received some critical praise for the latest upgrade to its Windows 8 operating system, which is designed primarily for mobile devices.
However Microsoft-powered products still make up a relatively tiny portion of overall smartphone and tablet sales, and some previous transactions of a similar nature to the Nokia deal – most notably, Google's acquisition of Motorola Mobility – have yet to show significant positive results.
But as Microsoft pushes aggressively for new markets and management, the company's core business faces a daunting reality. The traditional desktop market, which Microsoft capitalized on for decades to sell its ubiquitous operating system and productivity software, is contracting at a historic pace.
The declines have already hurt myriad technology giants, including PC-makers such as Dell Inc. Now, some analysts are worried the shift to mobile products may start to have an impact on some of Microsoft's most lucrative businesses.
"While the PC market decline has largely been reflected in the current stock price in our opinion, we express concern that the company's largest revenue stream – its productivity suite of applications that includes Microsoft Office – may become the next area to show weakness as a derivative function of the sustained declines in the PC market," said BGC Financial technology analyst Colin Gillis.
"We see the competition increasingly focused on targeting Microsoft's position in productivity applications."