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Edition: U.S. Article Comments (0) Follow Reuters Facebook Twitter RSS YouTube Read Boehner opens door to cutting U.S. oil tax breaks 8:26am EDT Poplar Bluff levee breached south of city Tuesday 1:59pm EDT More twisters and flooding expected in mid-South | 1:52pm EDT Five women brutally murdered in Mexico beach resort 23 Apr 2011 Third air traffic controller fired for sleeping 12:57pm EDT Discussed 143 Texas governor calls for prayers for rain 136 Obama sees no magic bullet to push down gas prices 65 U.S. sends drones to Libya as battle rages for Misrata Watched Taliban prisoners escape Afghan jail Mon, Apr 25 2011 NATO jets bomb Gaddafi compound Mon, Apr 25 2011 Afghans show prison break tunnel Mon, Apr 25 2011 Microsoft wrestles slack PC sales and wilting stock Tweet Share this By Bill Rigby SEATTLE (Reuters) - Microsoft might be about to report its earnings grew more than 20 percent on climbing revenue but the results will fail to rouse the software company's shares from a decade-long slumber or douse fears its dominance... Email Print Related News Sony chases Apple with launch of Android tablet 2:53pm EDT Nintendo to launch new Wii in 2012 as profit slips Mon, Apr 25 2011 Samsung countersues Apple over iPhone, iPad Fri, Apr 22 2011 GE's profit beat fails to stir Wall Street Thu, Apr 21 2011 Nokia sees weaker times after strong first quarter Thu, Apr 21 2011 Analysis & Opinion Paul Allen’s “Idea Man”: his inside story of the founding of Microsoft Tech wrap: Apple beats Google to the music cloud Related Topics Technology » Hot Stocks » Asian Markets » Media » iPad » Stocks People play a Kinect boxing game on an XBox 360 gaming console at the Microsoft booth during the first day of the 2011 International Consumer Electronics Show (CES) in Las Vegas, Nevada January 6, 2011. Credit: Reuters/Steve Marcus By Bill Rigby SEATTLE | Tue Apr 26, 2011 1:51pm EDT SEATTLE (Reuters) - Microsoft might be about to report its earnings grew more than 20 percent on climbing revenue but the results will fail to rouse the software company's shares from a decade-long slumber or douse fears its dominance of personal computing is waning. The second-largest U.S. technology company is expected to post on Thursday yet another solid gain in earnings and sales for its fiscal third quarter, as its stalwart Windows and Office franchises rumble on. Although the venerable software suites remain clear market leaders, investors fear people are getting used to new ways of computing -- using Apple Inc and Google Inc tablets and smartphones -- and that will erode Microsoft's dominance in a work and consumer space that relies on personal computers and installed software. "What people are going to be focused on is what's happening with their core PC business," said Michael Yoshikami, Chief Executive of fund manager YCMNET Advisors. "Is that slowing down? That's really going to dictate what Microsoft's future earnings power is going to look like." "In the long term, their core cash flow business is going to be impacted, particularly if we start to see an ASP (application service provider) model where companies are essentially renting software." That is precisely what companies like Google and Salesforce.com Inc offer with their online programs. Microsoft is countering with online versions of its own, but it has not yet done enough to persuade investors it will carry its dominance of the desktop into the age of "cloud" computing. In the past six quarters, the world's largest software company has beaten Wall Street estimates -- hitting a few records along the way -- only to see its stock fall in subsequent days. Its shares are now down 17 percent from a year ago, compared with a 14 percent gain in the tech-heavy Nasdaq index, and stuck at the same level as in 2001. 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, as the iPad and tablets ate away at the fringes of the market. Long term, some see the new devices as unleashing a genie that Microsoft may never be able to put back in the bottle. The new tablets "are making a sea of Microsoft customers comfortable using an operating system different than Microsoft's," said Yoshikami. "You're going to see a migration away from the monopolistic dominance that Microsoft had, and that's worrisome for them." NO RESPECT That fear has chilled Microsoft's stock. Despite quarter after quarter of strong results -- racking up record sales and profit in the last three months of last year -- investors are unwilling to grant Microsoft the valuation they used to. The stock is now trading at 9.4 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. But that presents an opportunity to some who feel the share price does not reflect Microsoft's true worth. "We view it as undervalued," said Kevin Walkush, business analyst at Jensen Investment Management, talking about the stock. "The climate really is negative toward Microsoft, and negativity overshadows a lot of the good things." While he acknowledges Microsoft has been slow to adapt to the explosion of smartphones and tablets in the consumer market, he thinks the reality of Apple and Google's threat to Microsoft's core business has been overblown. The software giant last year began selling Windows Phone 7 for smartphones, and is now working with leading handset maker Nokia. It has also laid plans to develop a tablet-friendly operating system. But success in either market seems years, rather than months, away. "Microsoft is an enterprise software company, that is key to understanding them," said Walkush. "They still have their core franchise of operating systems and Office is really strong. The enterprise market is not going away. There is not a mass migration to Google Docs." Likewise, he thinks Apple has not shown much promise in the lucrative business sector. "Apple's doing great on the consumer side, but I don't see them storming the gates on the enterprise side," he said. THE NUMBERS 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's 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 second-quarter net profit of $5.99 billion last week [ID:nL3E7FK17N]. Microsoft is expected to report 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 Monday, Apple led the pack with a market value of $324 billion. Microsoft was a distant second at $214 billion, with IBM close behind at $205 billion. (Reporting by Bill Rigby; Editing by Edwin Chan and Tim Dobbyn) Technology Hot Stocks Asian Markets Media iPad Tweet this Share this Link this Digg this Email Reprints We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language, all capital letters or appear to be spam, and we review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. Comments (0) Be the first to comment on reuters.com. Add yours using the box above. Social Stream (What's this?) © Copyright 2011 Thomson Reuters Editorial Editions: Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom United States Reuters Contact Us Advertise With Us Help Journalism Handbook Archive Site Index Video Index Reader Feedback Mobile Newsletters RSS Podcasts Widgets Your View Analyst Research Thomson Reuters Copyright Disclaimer Privacy Professional Products Professional Products Support Financial Products About Thomson Reuters Careers Online Products Acquisitions Monthly Buyouts Venture Capital Journal International Financing Review Project Finance International PEhub.com PE Week FindLaw Super Lawyers Attorney Rating Service Reuters on Facebook Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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