Wall Street Beat: Positive earnings news lifts tech shares

Microsoft shares hit a six-year high in an up day for the market

Strong earnings news from Internet and IT vendors gave a boost to tech stocks Friday, with Microsoft shares touching a six-year high.

The Nasdaq Computer Index rose 8.28 points to 1896.93 Friday, less than 4 points shy of a 12-year high. The last time the Nasdaq Computer Index was at this level was October 2000, as tech stocks were in free fall during the dot-com bust.

A strong earnings report from Microsoft, released Thursday, helped fuel the rise in tech shares.

Microsoft reported record fiscal first-quarter sales, up 16 percent year over year to US$18.5 billion, while net income was $5.2 billion, up from $4.5 billion. The report, however, highlighted work the company needs to do in hardware and the consumer market.

Software and services revenue increased 10 percent to $11.2 billion while devices and consumer sales rose 4 percent to $7.46 billion.

The devices and consumer area included some worrying news but also some positive results. In the consumer sector, Windows OEM revenue fell 7 percent year on year, most likely at least partly due to soft PC sales worldwide. Meanwhile, though, sales for Surface tablets increased to $400 million, including a sequential increase in revenue as well as units sold.

Microsoft shares rose to $35.73 Friday, up by $2.01.

Amazon was also a focus for tech investors, after reporting on Thursday an impressive 24 percent jump in revenue year over year, to $17 billion. As it pours money into R&D, marketing and business expansion activities, Amazon, as expected, suffered a $0.12-per-share loss. However, the money appears to be well spent, as Amazon added 9 million customer accounts in the quarter, for a total of 224 million active accounts. The company expanded sales at home and abroad.

Amazon shares rose sharply Friday, increasing by $31.18 to $363.39.

Enterprise software vendors on the whole reported strong results this week. Though SAP's software sales declined, the company reported strong growth in its HANA in-memory database and cloud businesses, which analysts say is important for growth in the future. The company said Monday that quarterly revenue was up 2 percent year on year to €4 billion (US$5.4 billion), while profit skyrocketed 23 percent to €762 million.

On the downside, software revenue fell 5 percent from the same quarter last year to €975 million. SAP shares rose $0.99 to $79.45 Friday.

SAP's much smaller, cloud-based competitor, Netsuite, reported a 34 percent increase in sales, to $106.9 million. The relatively young company still reports losses as it spends money to expand its business and this quarter was no exception. Its net loss for the quarter was $16.8 million, a bigger shortfall than $8 million a year earlier.

Storage giant EMC announced mixed results. EMC third-quarter consolidated revenue was $5.5 billion, an increase of 5 percent year over year. However, profit declined from $626 million to $528 million.

"Challenging macro conditions, including a doughnut for US Federal, continue to weigh on sector earnings and EMC's 3Q13," Sterne Agee analyst Alex Kurtz wrote in a research note.

EMC's virtualization technology subsidiary VMware, meanwhile, had more uniformly positive results. VMware sales were $1.29 billion, up 14 percent year over year, while profit increased 67 percent to $261 million.

Though Samsung Electronics is not traded on U.S. exchanges, its healthy earnings report Friday most likely helped fuel an air of optimism on the markets. Though the South Korean company said it experienced "intensifying market competition" in the mobile devices market, it nevertheless managed to drive profit up 25.6 percent year over year, to 8.24 trillion won (US$7.8 billion). Revenue came in at a record 59.08 trillion won, a year-over-year increase of 13 percent.

The flood of earnings reports will start to diminish next week, but a few large tech companies, including Facebook, will be reporting.

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Tags business issuesamazonMicrosoftSamsung ElectronicsSAPfinancial resultsemcVMware

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Marc Ferranti

IDG News Service

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