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Microsoft to Gain on Windows 7 Sales

Microsoft, on deck to report earnings after the bell, have investors keeping an eye on mobile strategy.
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NEW YORK (TheStreet) -- Buoyed by strong enterprise adoption of Windows 7, Microsoft (MSFT) - Get Microsoft Corporation Report is expected to announce strong first quarter results Thursday, while concerns about PC demand slowdown may hamper growth.

Analysts are anticipating total revenue of $15.8 billion, a 22% revenue increase over the same period last year, and profit of 55 cents, up from 40 cents.

Microsoft sold more than 240 million licenses for its Windows 7 operating system in its first year, becoming the fastest selling operating system in history. According to IDC, 90% of business customers have plans to roll out Windows 7 over the next two years.

Weakness in the global PC market driven by softened consumer demand, however, may threaten Microsoft's growth. Gartner recently lowered its third quarter estimates of worldwide PC shipments -- widely regarded as a sign of health in the sector -- from 12.7% to 7.6%.

Hype around tablets has also delayed some PC purchases, Gartner found.

Microsoft has been downgraded three times in October

over concerns about sluggish PC sales and worries that tablet devices could cannibalize Microsoft's PC business.



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and others have Windows 7-enabled tablets in the works, it remains unclear if Microsoft can catch up to tablet leader


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, which has already shipped 7.2 million iPads since the product's launch earlier this year.

"Microsoft may miss the window of opportunity to grab a meaningful share of

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the tablet market," Northern Securities analyst Sameet Kanade wrote in a recent note.

But some analysts believe that Microsoft can successfully capture tablet market share. "I think investors are way too quick to write Microsoft off in the tablet world, we're just going to have to be patient," said Neil Herman, an analyst at Soleil Securities. "The iPad is wonderful as consumption device, but I believe Microsoft wants to create a tablet that not only provides consumption, but also content creation at a very aggressive price."

Besides massive sales of its Windows operating system,

Microsoft's earnings will also be driven by video game Halo


Halo Reach

, the newest addition to the


franchise for XBox 360, hit $200 million in sales on the first day of its availability.



demonstrates that Microsoft can be innovative," Herman said. "It's gone from being nowhere in the gaming world to the number one console player in just seven years."

But despite beating analysts' expectations the last three quarters, Microsoft's stock has taken a beating. Shares have dropped almost 16% in the last six months. Competitors


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and Apple, meanwhile, have seen their stock prices soar 16% and 17%, respectively, during the same period.

Investors will be closely watching news related to Microsoft's

Windows Phone 7 release

, which many believe is an important step towards restoring confidence in the company's ability to innovate, especially in mobile. The mobile OS, expected to launch Nov. 8 in the U.S., will run on devices made by Dell,







While reviews of the platform have been largely positive so far,

Microsoft has long struggled to keep up with Apple and Google in the smartphone race.

Ray Ozzie, Microsoft's outgoing Chief Software Architect, wrote in a recent memo that Microsoft's overly PC-centric focus has distracted the company from developing an effective mobile strategy. Competitors like the iPhone and Android have outperformed Windows Phone 7, Ozzie said.

"Certain of our competitors' products and their rapid advancement and refinement of new usage scenarios have been quite noteworthy," he wrote. "Our early and clear vision notwithstanding, their execution has surpassed our own in mobile experiences."

Shares of Microsoft were rising 0.2% Thursday morning to $26.10.

--Written by Olivia Oran in New York.

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