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Look for Clues to Windows 8 Progress in Microsoft's Earnings Report

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The new software is supposed to be an all-purpose vehicle for a mobile device, tablet, laptop and PC, but can Microsoft pull it off?

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After weeks of speculation about its future, near- and long-term, Microsoft (NASDAQ:MSFT) releases its quarterly earnings report after the markets close on Jan. 24. It has got to be better than the company's previous quarter. Seriously.

The report comes in the critical early stages of the company's attempt to reinvent itself for the world that most of us already live in-the "post-PC" one, in which everybody is connected all the time, but nobody wants to be tied to a desktop when it's not absolutely necessary and/or the boss commands it.

Microsoft's plan, in a nutshell, is Windows 8, a revamped version of the operating system that the vast majority of people used until the company failed to anticipate the mobile computing revolution. The new software is supposed to be an all-purpose vehicle for a mobile device, tablet, laptop and PC or, crucially, a single device that functions as all or most of the above as needed.

It's no easy goal, and we're about to find out if Microsoft can pull it off. The company, and its stock price, have been treading water since 2001. For better or worse, that era is over.

The analysts' consensus for the quarter just ended is for earnings of $0.75 per share on revenue of $21.56 billion.

This week, the company announced that the Microsoft Surface Pro, its own take on that multi-purpose device, will launch on Feb. 9, at a starting price of $899, plus another $120 for a keyboard. Many other companies are introducing their own versions at various prices. Walt Mossberg, the influential Wall Street Journal columnist, just reviewed contenders from Hewlett-Packard (NYSE:HPQ), Asus and Toshiba (PINK:TOSBF).

A less powerful version, the Microsoft Surface RT, was introduced late last year. Pending the company's quarterly report, it's safe to say that the RT didn't fly off the shelves. What exactly is the point, consumers might well have asked, of a Microsoft device that doesn't have the juice to run the usual Microsoft software like Word and Excel?

So, the jury is still out on the Surface and all of the other Windows 8 hybrid devices.

But there are two other pieces of the Windows 8 story that are critically important to the company's success, in the quarter that just ended and the rest of this year:
  • First is the question of Windows 8 upgrades. We need to know how many PC and laptop users, corporate and personal, are or soon will be using Windows 8, rather than its immediate predecessor Windows 7 or the perennially popular Windows XP. Microsoft has said it has sold 60 million Windows 8 licenses to date. That would make it as successful as Windows 7. But the number apparently includes sales to PC manufacturers, so we still don't know how many real people are using it on PCs they already own. That number would give us a sense of how many will consider a Windows device when they shop for a new one.
  • The second point is all about smartphones. Windows 8 is Microsoft's last best chance to grab a share of the smartphone market. Not incidentally, it also is Nokia's (NYSE:NOK) last best chance at a comeback. Curiously, investors seem sold on Nokia even while they're uncertain about Microsoft. The Finnish phone maker's stock is up more than 90% since last August, to $4.64 at Wednesday's close. Nokia also reports its earnings results on Jan. 24. And, the company has sent a steady stream of upbeat signals about sales in China, the US, and Europe of its Lumia phone line, which runs on Windows 8.
It may seem excessive to harp on about Windows 8. Microsoft is a big and diverse company, with fingers in many pies. The problem is, Windows has always been the Trojan horse for most of that other stuff-the productivity software, cloud services, Bing search engine and other websites, email, and just about everything else the company makes or sells.

Oh, except for the Xbox. The game machine exists as a virtual mini-empire that chugs along happily all by itself. And if that's enough to make you interested in Microsoft, you should know that there's a hot rumor of a new Xbox 720 as early as June 2013.
Position in MSFT
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