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Microsoft's Growth Plans Will Be Scrutinized

Microsoft Earnings

Microsoft will announce its fourth quarter, as well as its year-end, revenue and earnings later today after the markets close. Whether analysts' already downsized expectations for the software maker will keep them from battering Microsoft's (NASDAQ: MSFT) stock in the wake the announcement remains a question.

Estimates from Thomson Financial predict that, for its fourth fiscal quarter ended June 30, Microsoft will announce $14.37 billion in revenues and $0.36 per share. For the entire year, the estimates peg revenues at $59.66 billion and earnings per share (EPS) of $1.70.

As with the third fiscal quarter, analysts are expecting a decrease in both quarterly and annual revenue over the same periods last year. For the quarter, estimates are predicting a sales decline of 9.3 percent, while for the year, revenues are predicted to be down 1.3 percent, from $60.42 billion last year.

However, what Microsoft executives say about the future will likely be foremost in most investors' minds.

For instance, Windows 7 was "Released to Manufacturing" (RTM) on Wednesday, a major event signaling that income from sales of the new system, even though it's not set to be released until October, is not far off. After nearly three years of lackluster sales of Windows Vista, many analysts view the market potential for Windows 7 to be nearly explosive due to pent up demand.

Some customers will get the final, release version of Windows 7 within the next few days. While those downloads don't reflect new income, they will likely be a leading indicator of how Windows 7 will do in the marketplace.

Such a move not only indicates to customers and analysts that Windows 7 will launch on schedule October 22, but that a new revenue cycle has begun.

One tough question will be how much sales of lower cost versions of Windows -- primarily XP but also Windows 7 -- that will power so-called netbooks, will cut into sales of higher-cost versions.

A wave of new products

Additionally, in recent weeks, Microsoft officials have repeatedly hammered home the message that it's currently readying or already shipping the largest wave of product releases in its 34-year history. Besides Windows 7 and its server counterpart, there's Windows Server 2008 Release 2 (R2), which was also RTMed on Wednesday and Internet Explorer 8, which shipped in March.

Cloud computing, and Microsoft's Azure application platform, are also likely to take center stage with investors.

Beyond that, Microsoft has a slew of lesser products on the schedule as well, such as Silverlight 3, it's streaming media technology, and Expression 3, its rich Web application toolset, both of which just shipped.

Analysts will no doubt want to hear about whether Microsoft and Yahoo (NASDAQ: YHOO) have struck an advertising and search deal. That is unlikely to be announced during the earnings call with analysts Thursday. However, rumors have run rampant for the past few weeks that the two are close to a deal.

Also, under analysts' magnifying glasses will be Microsoft's new Bing search engine, which debuted in early June. While early statistics show that Bing, at least initially, has robbed Yahoo of a tiny percentage of market share, Bing's success is not assured.

Microsoft CEO Steve Ballmer recently said he is planning on spending between 5 and 10 percent of the company's operating income to make Bing successful.

A bumpy year

"It was a bumpy year for Microsoft. In January, the company announced its first large scale layoffs -- a decrease in headcount by 5,000 -- although hiring in other areas meant that actual numbers were smaller.

One legal hassle that's bound to hang over Microsoft in fiscal 2010 is the company's contretemps with the European Commission (EC). All indications are that -- even though the EC has yet to rule for or against Microsoft in its anti-trust case regarding bundling Internet Explorer with Windows going back to 1996 -- the EC is likely to come down hard on the company.

That will probably come in the form of ordering Microsoft or PC makers to ship Windows in Europe with a selection of browsers to choose from on initial startup, as well as a fine that could far surpass the $1.45 billion fine the EC recently assessed against Intel.

The EC's competition directorate is expected to announce its decision any time between now and this fall when the current commissioner's term expires.

Microsoft is expected to reveal much more of its thinking regarding the company's future offerings and plans when it hosts its annual Financial Analyst Meeting next Thursday, July 30.