Yahoo overshadows Microsoft earnings and forecast

By Daisuke Wakabayashi

SAN FRANCISCO (Reuters) - Microsoft Corp (MSFT.O) is expected to provide a first glimpse at its projections for its coming year, but news of any progress on a possible deal with Yahoo Inc (YHOO.O) could overshadow even an upbeat outlook.

Microsoft is slated to report its fiscal third-quarter results on Thursday with Wall Street analysts expecting a fall in profit from a year earlier, when the company booked $1.6 billion in revenue deferred from a quarter earlier because of delays to its Windows and Office upgrades.

It will also provide an outlook for its coming fiscal year starting in July, offering investors clues on how concerned the world's largest software maker is about an economic downturn sapping technology spending.

"I would expect that Microsoft will factor in some (economic) weakness into their numbers," said Sid Parakh, analyst at McAdams Wright Ragen. The company has said it expects revenue to grow more than 10 percent next year.

Analysts, on average, are forecasting Microsoft's fiscal 2009 earnings to grow an estimated 12 percent to $2.10 a share on revenue of $66.46 billion (33.29 billion pounds), a projected increase of 10 percent, according to Reuters Estimates.

The caveat to any projections made by Microsoft is that an acquisition of Yahoo would make previous forecasts obsolete.

The two are in a stand-off over Microsoft's unsolicited $43 billion offer to buy Yahoo. Microsoft has refused to lift its stock-and-cash price, even as Yahoo's board of directors has said the offer undervalues the Web pioneer. So Microsoft's results should play second fiddle to the takeover battle.

"There isn't going to be a lot of things that pop out of the blue so the focus is going to be on Yahoo and the online business especially given the magnitude of the deal," said Parakh, who has a "buy" rating on Microsoft with a 12-month price target of $40.