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4/24/2014
09:06 AM
Michael Endler
Michael Endler
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Microsoft Earnings: 6 Questions

Microsoft has been on fire lately, but new CEO Satya Nadella will face questions during Thursday's earnings announcement about Windows XP, Nokia, Surface, and other trouble spots.

Microsoft Office For iPad: 7 Questions Answered
Microsoft Office For iPad: 7 Questions Answered
(Click image for larger view and slideshow.)

For the first time in what seems like years, Wall Street is bullish on Microsoft. In recent months, the company's stock has traded at its highest levels since the dotcom boom, flirting with the symbolically important $40 mark in the process.

Not only shareholders but analysts have been impressed as well. In a research note published this week, for example, Forrester analysts say Microsoft's new cross-platform emphasis should "bear fruit as more consumers and more companies look to run familiar Microsoft software on all their devices."

Compare all this to the situation last summer, when Microsoft, already wounded from months of Windows 8 scorn, took a near $1 billion write-down on unsold Surface inventory. That debacle triggered one of the biggest one-day sells-offs in Microsoft history, and provided abundant fodder for critics of then-CEO Steve Ballmer's consumer-focused plans.

[Just updated to Windows 8.1? Read Windows 8.1 Update: 8 Tips to Avoid Headaches.]

Since then, Ballmer announced his retirement, which caused Microsoft's stock to rally. The company also unexpectedly posted record revenue earlier this year, during Ballmer's final earnings call, with strong cloud and services growth overshadowing ongoing Windows trouble.

Microsoft's momentum shifted into a still higher gear this month, largely because Ballmer's replacement, Satya Nadella, has hit all the right notes. It's early in Nadella's tenure, which makes it unclear how big a hand he's had in recent product announcements, such as Office for iPad. But other new releases, such as the company's revamped data platform, clearly bear his signature.

Microsoft CEO Satya Nadella scored early victories but will face tough questions from investors.
Microsoft CEO Satya Nadella scored early victories but will face tough questions from investors.

Most important, the new CEO has set a different tone than his predecessor; in contrast to Ballmer's trademark bombast and Windows cheerleading, Nadella drops references to TS Eliot, emphasizes cross-platform opportunities, characterizes Microsoft as an underdog, and champions data over virtually all else.

This Thursday, Microsoft will release its first earnings report since Nadella took over. Analysts anticipate earnings and revenue will be down relative to last year, thanks in large part to weak consumer PC sales. But that hasn't dampened enthusiasm for Nadella, even as Wall Street has turned a skeptical eye this year toward Apple, Netflix, Google, Amazon, and other large tech stocks. Given that he inherited rather than created Microsoft's most troubled assets, investors might give him some leeway, assuming none of the cloud products he once managed unexpectedly underperforms.

Even so, Nadella will face tough questions about Windows XP's retirement, Windows 8.1's struggles, Microsoft's consumer hardware efforts, and other trouble spots. Will Microsoft continue to ascend, or is the Nadella honeymoon beginning to wind down? Here are six questions we think he'll have to answer.

1. Are Microsoft's cloud and enterprise services compensating for falling Windows revenue?
Microsoft makes billions from its operating systems, but Windows revenue is shrinking for a variety of reasons including falling PC sales, especially among consumers; weak Windows 8 adoption; and reported reductions in OEM license fees. This downward trend is likely to continue, given that

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Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

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Joe Stanganelli
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Joe Stanganelli,
User Rank: Ninja
4/25/2014 | 10:55:07 AM
Nadella
New megatech CEOs always make Wall Street excited -- especially when the tech sector begins to find the old CEO tiresome.

Speaking of Nadella, can we have an InformationWeek caption contest on that picture of him?  It's just so fantastic and hilarious.
Brian.Dean
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Brian.Dean,
User Rank: Ninja
4/24/2014 | 7:42:11 PM
Dual Complication
On the one hand, Microsoft has entered to many areas to compete, software was always there but then came video games, consumer markets and the Cloud, etc, everything except for maybe social media but then again Microsoft did buy some of Facebook's shares, so that even can't be said, confidently. This makes specialization difficult and competing with companies that specialize in a single area hard, I guess it has an effect on innovation as well.

On the other hand, it is good financial advice to have a diversified portfolio and at the end of the day if Microsoft makes a profit then everyone will be happy. But if Microsoft does not make a healthy profit then where is the innovation going to come from? 
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