NEW YORK ( TheStreet) -- No tech company defines the waiting game better than Microsoft ( MSFT).
The Redmond, Wash. tech giant, on deck to report fiscal third-quarter earnings after the bell Thursday, is likely to repeat the same pattern spun out over the past five or so quarters: A post of solid top- and bottom-line growth, followed by a drop in stock price that lasts for at least a few days.
While some analysts say that investor patience is about to pay off, a lasting pop in Microsoft's stock won't likely hit until the firm shows tangible evidence of overcoming the two big problems perceived by investors: A (tablet?) plan to offset what could be long-term softness in the consumer PC sector and doing a better job of catching up to rival mobile OS brands like Apple ( AAPL) and Google ( GOOG). Despite solid reviews of phones running it, Windows mobile has fueled uneasiness in investors, due partly to the company's reticence regarding just how many Windows Phone 7 handsets have been activated by consumers. In January, Microsoft said that it had shipped 2 million of its phones through December -- to retailers. "Windows Mobile may be a touchy subject in this report given the company's sales claims, which seemed to reflect copies shipped more than actual copies sold," Charles King, principal analyst at tech research shop Pund-IT, said in an email to TheStreet. While Apple and Google regularly supply the numbers of new phones running their software, Microsoft has so far demurred. "Windows Phone 7 is off to a solid start," Bill Koefoed, Microsoft's investor relations chief, said on the conference call with analysts last quarter. He noted that the firm has signed up 24,000 developers to build out the system's apps menu, but that didn't give any sort of picture of Windows Phone 7's reception with consumers or enterprise users. Hope for Microsoft and mobile lies in its just-inked partnership with the world's largest smartphone player Nokia ( NOK), which will see Windows Phone 7 as the primary operating system for its handsets coming sometime in 2012. Research firm Gartner even predicts that the deal will propel Microsoft from its current fifth place to second in smartphone OS market share -- five years from now. The PC Market Conundrum Despite recent research that worldwide PC shipments are falling -- Gartner reported a decline in PC unit growth of about 1.1%, while IDC posted a 3.2% decline -- Intel's ( INTC) robust results last week painted a different picture: Its PC client group registered a 17% year-over-year increase in sales. That's positive news for Microsoft and its core Windows market, where continued enterprise PC spending should offset consumer weakness.
"I regard Intel's results as a bellwether of how its OEMs are feeling -- those are, after all, the companies who are actually building/selling Intel and Microsoft-based products," said King. "While there are certainly reasons to be cautious about the recovery (especially among consumers), there also seems to be a sense of optimism that, along with numerous terrific new products, is driving many businesses to upgrade desktops, laptops and other IT assets." Analyst firm McAdams Wright Ragen, which holds a buy rating on Microsoft, recently upped its third-quarter estimates, driven by higher Windows forecasts. "Overall, we expect Microsoft's third-quarter results to reflect continued strength in enterprise spending on IT infrastructure, weakness in consumer PCs in developed markets, and robust demand for Kinect," wrote Sid Parakh, an analyst with the firm, in a recent note. Kinect for Xbox sales haven't slowed much since the holidays, when Microsoft said it sold 8 million of the consoles. Last month, the company announced that it had sold 10 million Kinects to date, which means that consumers bought around 2 million of the devices from the end of December through early March. Analyst firm Stifel Nicolaus estimates that Microsoft's entertainment division will grow year-over-year by 58%, ahead of the firm's own 50% guidance. Analysts surveyed by Thomson Reuters expect Microsoft to report numbers in-line with estimates, including profit growth of about 20% year over year. That amounts to adjusted earnings of 56 cents a share on quarterly sales of $16.2 billion, up from 45 cents and sales of $14.5 billion in the year-ago quarter. The company's stock, which is down more than 5% year to date, was up 9 cents, or 0.34%, at $26.47 shortly after market open.