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Microsoft deal talk, optimism overshadow results

Microsoft Corp will likely report the first annual sales dip in its history as a public company, but investors are looking beyond that for upbeat comments on Windows 7, signs of a tech sector recovery, and even a deal with Yahoo Inc to challenge Google Inc.


The question for investors when the world's largest software company reports quarterly results on Thursday is whether it can present enough optimism to maintain the momentum that has pushed shares up 63

% since early March. Tech heavyweights IBM and Intel Corp ratcheted up expectations last week by blowing through Wall Street forecasts and setting ambitious outlooks that suggest the worst may be over for the sagging computer business. Microsoft, whose software drives more than 90% of the world's PCs, stands to benefit as it prepares to roll out its new Windows 7 operating system in October. Aside from Windows 7 - which should help erase bad memories of its poorly received predecessor Vista - Microsoft has a new version of its huge-selling Office suite of applications in the works, and it is finally making headway against Google with its six-week old Bing search engine. After months of intermittent negotiations, and an aborted takeover bid last year, Microsoft finally looks ready to strike an Internet search and online advertising deal with Yahoo, according to a source familiar with the situation. An announcement could come before the results on Thursday. The broader technology economy could be moving in Microsoft's direction. Last quarter's worldwide PC shipments fell about 3% from a year ago, a much smaller drop than expected in the depths of a US recession. Analysts are now talking about growth in PC sales returning in the fourth quarter. (Reuters)