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The world’s largest software company Microsoft (MSFT - Analyst Report), reported earnings after the bell today, posting an EPS of $0.66 and revenue of $19.9 billion.  This was below the Zacks Consensus Estimate of $0.74, and revenues were below expectations of $20.7 billion.  

The Zacks Expected Surprise Predictor foretold of a negative earnings surprise for Q2.  This was expected due to fifteen downgrades in the past 60 days with zero upgrades by any MSFT analysts.  Currently, Zacks models show a negative Expected Surprise for the remaining two quarters and overall for 2014.

The analysts who downgraded MSFT’s earnings are concerned about PC sales and demand; Q2 was the fifth consecutive quarter with a year over year decline in PC sales (Q2 declined 11%), coupled with the recent slashing of Surface tablets price by up to 30%.  Some analysts have remarked that the demand for the tablet is just nonexistent.  Furthermore, the Windows division, Entertainment division, and the Servers and Tools division all showed declines in revenue for Q2.  

On the positive, the company still believes that Windows 8, and the upcoming Windows 8.1 (due out later this year) will spur increased interest from developers, and consumers as a whole.  Moreover, CEO Steve Ballmer recently stated that the “new norm for the company would be a faster release of Window upgrades and much more focus on devices such as smartphones and tablets.”  

In afterhours trading, MSFT has declined more than 5% on increased volume.  This suggests that the analysts fears regarding PC sales and demand have been validated.  

Zacks will post a detailed earnings report tomorrow morning with a more detailed analyst data.

Citrix Systems Inc (CTXS - Analyst Report) and F5 Networks (FFIV - Snapshot Report) both post earnings on July 24.

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