SAN FRANCISCO -- Microsoft ( MSFT) is expected to deliver a "gnarly" second-quarter earnings report after Thursday's closing bell.Gnarly, not in surfer-dude speak, but in the sense that comparisons with year-ago results may seem tangled and difficult to decipher. In the second quarter of last year, a significant chunk of software revenue was deferred to the third quarter of 2007, according to Matt Rosoff, analyst with Directions on Microsoft. For example, in last year's second quarter the company reported $140 million more in deferred sales of Windows Vista and Office software than it had expected. Microsoft will likely report adjusted figures as well as traditional comparisons with the second quarter of 2007, Rosoff said. "It's a complicated year of earnings. It'll be gnarly." Officially, however, the Street will be looking to see if holiday Xbox sales can provide an upside surprise. Sell-side analysts are looking for total second-quarter revenue of $15.95 billion and earnings per share of 46 cents for the quarter ended in December, according to Thomson Financial. Microsoft shares began to rise in early October, hitting a one-year high of $37.50 in November after its
Later in the year, Microsoft will add a key virtualization technology to that server upgrade to better control use of Windows within virtualized data centers and to compete with virtualization leader VMware ( VMW). D.A. Davidson analyst Alan Davis raised Microsoft to a buy Tuesday, lifting his price target on the stock to $40, in line with the consensus, due to strong Xbox sales during the holiday season and PC unit growth estimated at 14%. Some 4.3 million Xbox 360s were sold, he wrote. Davis believes the company's international strength should offset weakness in the U.S. market. And in emerging economies, where PC sales are strongest, Davis expects Microsoft's inroads against software piracy to continue to pay off. Davidson expects to receive, or intends to seek, compensation for investment banking services from Microsoft. The strong PC shipment figures for the quarter from Gartner and IDC, putting sales between 13.1% and 15.5%, are ahead of Microsoft's projections for 11% to 13% growth in its PC software business, according to JPMorgan analyst Adam Holt. Microsoft is a non-investment banking client of the firm. The strong numbers bode well for Microsoft's client and Office revenue, which, together with the strength of Xbox, should drive the quarter's outperformance, Holt wrote recently.