Microsoft's Hopes Rest on Windows 8

NEW YORK ( TheStreet) - Microsoft ( MSFT) reports third-quarter earnings after the close of trading Thursday, and investors will be keen to hear about any updates on the software maker's new operating system, Windows 8.

Optimism has been running high for Windows 8, ever since the Redmond, Wash.-based Microsoft announced it would run on chips based on designs from ARM Holdings ( ARMH), ending its exclusivity for x86 architecture, used primarily by Intel ( INTC) and AMD ( AMD). Investors have bid up Microsoft shares 21% year to date and 24.9% over the past 12 months as optimism has increased.

Think Equity analyst Yun Kim is positive regarding the growth prospects of Windows on ARM (often referred to as WOA), but believes too much optimism has been baked in.

"While we are optimistic regarding the unit growth prospects of the upcoming Windows 8 release supporting ARM architecture, we are wary of the pricing pressure it could face given the lower pricing points of non-PC devices. We do not believe the current positive investor sentiment regarding the Windows 8 release has fully accounted for a potential negative pricing headwind," Kim wrote in a recent research note. He rates Microsoft shares hold with a $31 price target.

Kim noted that Microsoft shares will continue to be driven by the prospects of WOA, as opposed to quarterly results.

The Street mentioned Windows 8 as one of three signs of a tech boom for 2012.

Sanford analyst Mark Moerdler is positive on the release of Windows 8, for several reasons, most notably its ability ability to run on ARM-based chips.

"We remain optimistic about Windows 8, given its support for ARM, good backward compatibility, usercentric design, and touch interface," Moerdler rote in his research note. He rated Microsoft shares outperform with a $37 price target.

There is also increasing optimism on PC shipments, thanks in part to strong data from Gartner. Gartner noted that PC shipments showed 2% growth year over year.

"Given recent industry analyst reports that indicate that PC shipments came in at nearly +2%, vs. our expectation for no growth, we believe that there could be some upside to revenue results in the WWL and MBD business units," wrote Wells Fargo analyst Jason Maynard. He expects Microsoft to report quarterly revenue of $17.1 billion, and 59 cents per share in earnings. He rates Microsoft shares "marketperform.

Analysts polled by Thomson Reuters expect Microsoft to report third-quarter earnings of 57 cents per share on $17.176 billion in revenue.

Shares of Microsoft were higher in Thursday trading, up 0.9% to $31.42.

Interested in more on Microsoft? See TheStreet Ratings' report card for this stock.

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-- Written by Chris Ciaccia in New York

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