Microsoft Goes on the Clock

Analysts will be looking hard at a number of areas, including the performance of the company's server unit and any clues the results hold for the strength of PC demand, says Bill Gorman, vice present in the equity research department with PNC Wealth Management, which holds Microsoft shares in one of its funds.

Although it may be coincidental, two of the company's worst-performing divisions -- Microsoft Business Solutions (its business applications unit) and its Mobile and Embedded units -- are being folded into the Microsoft Business Division and Microsoft Entertainment and Devices units, respectively.

Because the Business Division includes revenue from cash cow Office, it will be harder to follow the progress of the company's foray into enterprise software. The new structure won't be reflected in fourth-quarter results, but will be the basis for earnings reports and guidance, beginning with the first quarter of fiscal 2007.

Investors also will be looking for clues that the Xbox 360 video-game console, which got off to a slow start because of manufacturing constraints, is moving into high gear.

According to NPD, which tracks retail sales in the U.S., cumulative sales since last year's launch were 2 million units, while sales in June were a bit more than 250,000. However, the same data show that Sony's six-year-old PS2 outsold the Xbox in the U.S. that month by 312,000 to 277,000, and software sales for Sony's game platform were more than twice as large at $153 million vs. $66 million.

Wedbush Morgan Securities analyst Michael Pachter predicts that Microsoft should be able to sell approximately 200,000 to 300,000 consoles monthly. His company does not have an investment banking relationship with Microsoft.

But the key market of Japan is another matter. Microsoft has been selling fewer than 2,000 Xbox 360s a week in Japan in recent weeks while Sony has been selling north of 20,000 PS2s a week in recent weeks, according to Media Create, a Japanese market research company.

Profitability is another matter as well.