Microsoft Gives Investors No Reason to Buy

Its efforts to broaden into mobile will take a while to work

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

Microsoft NASDAQ:MSFTIn light of the terrible results from Intel (NASDAQ:INTC) and IBM (NYSE:IBM), investors had lots of trepidation ahead of Microsoft’s (NASDAQ:MSFT) earnings report. Might we see another disaster?

Well, the worrying was somewhat overblown. All in all, Microsoft reported an decent quarter. Earnings came to $4.47 billion, or 53 cents a share, which was down about 22%. Revenues fell from $17.4 billion to $16 billion. As for the Street, the forecast was for EPS of 56 cents a share and revenues of $16.4 billion.

Forget the Flub: Google’s Larry Page Wants to Talk Mobile
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But Microsoft’s revenue numbers are a bit distorted because they’re often recognized over multiyear contracts. Because of this, deferred revenues were $19.6 billion in the quarter. The consensus estimate was $19.3 billion.

It’s true that Microsoft is feeling some pressure on its core Windows business as PC sales have remained sluggish. But the company also showed weakness in other parts of its operations, such as the Servers & Tools segment. It posted a revenue increase of only 8%. Then again, it looks like the slowing global economy is taking a toll on IT spending across the board.

Of course, a key priority for Microsoft is its mobile strategy. Unfortunately, the results have been mostly disappointing. Just look at the anemic sales of Windows-based phones from Nokia (NYSE:NOK).

Yet Microsoft isn’t giving up. The company continues to invest heavily in its smartphone business and is also going to launch its own tablet, called the Surface. In fact, it looks like the Surface is going to get some traction. A key factor is that it will run Microsoft Office. Of course, it also helps that Microsoft can leverage its massive customer base.

But investors should be cautious: It will take some time for Microsoft to realize meaningful results from its mobile efforts. If anything, they’ll likely cannibalize its PC revenues. At the same time, Apple‘s (NASDAQ:AAPL) iOS 6 and Google’s (NASDAQ:GOOG) Android will likely keep pushing forward with innovation, making things even more difficult for Microsoft.

So, while the company has a solid business, with the upcoming Windows 8 operating system a potential booster — and an attractive dividend yield of 3.1% — there’s not much else to juice the stock over the next couple quarters. That’s especially true given that IT spending will probably continue to deteriorate. Thus, there’s no reason to jump into the stock for now.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.”  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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