A lower outlook for PC software sales at Microsoft Corporation (NASDAQ:MSFT) is expected to send shares lower at the open and act as a drag on US markets as the Fed begins its two-day meeting ahead of earnings from tech giants Apple Inc (NASDAQ:AAPL) and Yahoo! Inc (NASDAQ:YHOO) after the close.
Microsoft beat earnings estimates and announced a share buyback scheme of $30bn which is larger than previous years although perhaps not quite as aggressive as some had called for, but it was the outlook on software that will do the damage.
Software-licensing is Microsoft’s largest source of revenue which had a boost from a PC upgrade cycle resulting from the end of the company’s support for the Windows XP operating system. As that cycle ends, CEO Satya Nadella who has now been in the job one year needs to accelerate the move into cloud-based services to make up the deficit.
After the close, Apple will announce its fourth quarter and holiday sales results which include sales numbers for its latest handsets the iPhone 6 and 6 plus which are expected to take the company closer to overtaking Samsung Electronics Co (LONDON:0593xq) as the largest global seller of smartphones.
Expectations have risen steadily since Apple issued guidance in the third quarter and so merely meeting the guided numbers could prove a disappointment for many. The expectations for Apple this quarter have risen for a reason, the iPhone 6 has proven very popular with sales in China expected to outstrip the US for the first time.
Apple shares hit the highest level in 2015 on Monday having found a floor around $105 so should earnings do the job, a re-test of all-time highs just shy of $120 appears to be on the cards.
Plans for how to use the billions of dollars in proceeds from Alibaba Group Holdings Ltd (NYSE:BABA) share sales as well as the handling of tax on the sales will be main points of interest in the fourth quarter earnings report from Yahoo!
Sharp profit declines are expected but the company has huge potential if the funds from Alibaba can be used to redirect the business into more profitable territory. Blogging site Tumblr and Yahoo’s latest acquisition of video ad service BrightRoll are already steps in the right direction and if integrated properly with Yahoo!’s exiting infrastructure can be big ad revenue contributors in 2015.
Yahoo! shares hit the lowest since November on January 16 but have since rebounded from below $46 to just shy of $50. Should Yahoo! shares close above $50 after earnings are reported tomorrow that opens up another run at the highs above $52 .
Futures suggest the:
S&P 500 will open 4 points lower at 2,053 with the
Dow expected to open 48 points lower at 17,630 and the
NASDAQ Composite 13 points lower at 4,262.
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