Some of the biggest names in IT including IBM, Microsoft, Google and Intel reported quarterly earnings this week, revealing a picture of the tech sector that, while not as gloomy as had been feared, is nevertheless mixed.
The earnings reports showed that while hardware suffered in the first quarter, software sales showed resiliency. The news was enough to send the Nasdaq tech index up 0.92 percent to 1521.92 in Friday afternoon trading. Not all vendors enjoyed shareholder confidence, however. For example, while Microsoft shares were up US$1 to $29.79 and Google was up $34.77 to $800.47, IBM declined $16.76 to $190.41 and AMD dropped $0.10 to $2.41.
Market surveys in recent weeks showed a precipitous drop in the first quarter for PC sales and raised concerns that tech bellwethers -- especially those with exposure to the consumer hardware market -- would be reporting dismal sales.
Microsoft's earnings report, however, showed gains in all of the company's business units. For the quarter ended March 31, Microsoft reported revenue of US$20.5 billion, up 18 percent year over year, while profit rose 19 percent to $6.06 billion.
Last week, IDC said the 13.9 percent year-over-year drop in first-quarter PC sales was the worst decline it has seen since it started tracking the PC market in 1994, laying some of the blame on Windows. Windows 8, which was launched in October, offers a touchscreen-based interface that is a departure for the OS and made the software less attractive to users, IDC said.
Microsoft's Windows Division, however, garnered quarterly revenue of $5.7 billion, up 23 percent. Excluding revenue recognized from a prior upgrade offer, revenue was flat year over year, but in any case the Windows landscape for the quarter was hardly the disaster that some industry watchers feared.
The news could bode well for other sectors in tech. "Software is a leading indicator," noted Forrester chief economist Andrew Bartels. Noting that Microsoft's Business Division, which includes Office, increased revenue 8 percent to $6.32 billion, Bartels said business spending on software can translate into more spending on related services several quarters down the road as companies implement related projects.
SAP had good news for the software market Friday morning, announcing its 13th consecutive quarter of double-digit growth in software and software-related services. The business applications vendor said revenue increased 7 percent to €3.6 billion (US$4.6 billion), while net earnings jumped 17 percent to €520 million.
Meanwhile, in keeping with general expectations for the tech sector, IBM's software product range did better than other aspects of its business. IBM Thursday reported a 5 percent year-over-year decline in revenue to $23.4 billion and a 1 percent decline in net income to $3 billion.
Revenue from the software business was flat at $5.6 billion, and up 1 percent adjusting for currency. Other businesses did not fare as well. Global Technology Services revenue decreased 4 percent, down 2 percent adjusting for currency, while revenue from the Systems and Technology unit totaled $3.1 billion, down 17 percent, or 16 percent adjusting for currency.
The weakness in systems makes sense given U.S. government spending cuts that are part of the so-called "sequestration," Forrester's Bartels noted. "One of the easiest things for government agencies to cut back on is hardware," Bartels said. Services did not do as well as expected, perhaps a result of weakness in spending on software in the third quarter last year, and its subsequent effect on projects that required consulting services, Bartels noted.
Things were worse for chip makers Intel and Advanced Micro Devices, both dependent on the PC market. Intel on Tuesday reported that quarterly net income dropped year over year by 25 percent, to $2.05 billion, while revenue declined 2.5 percent to $12.6 billion. Intel is trying to get into the fast-growing tablet market, dominated by ARM chips, and expects to ship new smartphone and tablet chips to device makers this quarter.
AMD is also moving into new markets, having recently signed a deal with ARM to build low-power server processors around the U.K. company's architecture. Meanwhile, on Thursday it reported that quarterly revenue plunged year over year by 31 percent to $1.09 billion. It had a net loss of $146 million, improving on its loss of $590 million a year earlier by reining in costs.
Google results Thursday showed that the decline in average ad prices is easing up, suggesting that companies are paying more for ads that reach mobile devices. The cost of paid clicks fell by approximately 4 percent compared to last year, but the decline is better than the 6 percent drop Google reported during its last earnings report in January. Google's total first-quarter revenue rose by 31 percent to about $14 billion, while net earnings increased 16 percent to $3.35 billion.
Results for Google competitor Yahoo, now run by former Google executive Marissa Mayer, paled by comparison, though net earnings improved partly as a result of lower operating costs. Net earnings for the quarter jumped 36 percent to $390 million, though revenue fell by 7 percent during the quarter to $1.14 billion.
While Mayer trumpeted "stability in our business," it will take more than cost cutting to get sales on a growth track.
Next week, Apple results will give market watchers another look at not only computer sales, but sales of leading smartphones and tablets. Amazon, Texas Instruments, Qualcomm and VMware are also due to report.