Wall Street Beat: Microsoft deal, Intel dividend buoy tech

Macroeconomic worries and Cisco's earnings report cause concern, but IT still rides high

Though Cisco had disappointing earnings news this week, the Microsoft deal to buy Skype, an Intel dividend and solid financials from Symantec helped keep confidence in IT high.

Microsoft's US$8.5 billion deal to buy Web phone and video service company Skype, announced Tuesday, lifted markets across the board, even though some analysts grumbled that the price was high for a company that has had a patchy history both financially and organizationally.

If it is approved by regulators, it will be the largest acquisition in Microsoft's history. Microsoft said it will incorporate Skype functionality into its gaming devices and Windows Phone operating system as well as various communications offerings such as Outlook. Microsoft CEO Steve Ballmer also promised to maintain Skype compatibility with non-Microsoft products.

Even though Skype has close to 170 million monthly users, it has had a troubled earnings history. EBay bought Skype, founded in 2003, for $2.6 billion plus other cash-related incentives in 2006, but in the ensuing three years only managed to wring one year of profits from it, finally dumping it for $1.9 billion to a private-investment group.

But the deal has potential for Microsoft, which is playing catch-up in Web mobile communications and video, and has vast resources to enhance and integrate the Skype technology.

"This will put Microsoft back in the game on the larger playing field against newer and faster-growing companies like Google and Apple who have also expanded into the telephony business with their wireless Android and iPhone," said independent analyst Jeff Kagan in an e-mail.

Coming after AT&T's March announcement that it planned to acquire T-Mobile for $39 billion, and Intel's announcement, also Tuesday, that it would increase its dividend, investors apparently took the Microsoft announcement as another sign that cash-rich IT and telecom companies are ready to start disbursing large sums to purchase technology in a fast-paced market, and also to start paying back investors after years of hoarding cash from record-breaking earnings. All U.S. exchanges jumped on the news, with the tech-heavy Nasdaq jumping Tuesday by 28.64 points to 2871.89.

Intel's dividend announcement was particularly gratifying to investors who have seen the company's shares lag behind other chip makers, even though it continues to dominate its market. The company will increase its quarterly dividend to $0.21 per share, up from $0.184, in an effort to create investor confidence.

"Intel's current and projected growth is generating strong cash flow, allowing us to further increase our dividend," said President and CEO Paul Otellini in a statement. Intel forecasts a record 2011, with sales increasing by 20 percent.

Though Intel is globally dominant, the chip landscape is shifting as mobile-device use grows and chip designer ARM gains traction. While Intel shares have appreciated 5.8 percent over the past year, the Philadelphia Semiconductor Index of sector stocks has risen 22 percent. Intel shares, however, jumped $0.27 to $23.03 Tuesday after the dividend announcement.

Symantec, a bellwether for the security software arena, had good news Wednesday when it reported a 9 percent year-over-year gain in fourth-quarter profit, to $1.67 billion, and a 3 percent increase, to $6.19 billion, in revenue. Shares jumped $1.01 on the news to close at $20.42 Thursday.

The big disappointment of the week came from Cisco, which on Wednesday reported that sales for the quarter ended April 30 grew at a sluggish 4.8 percent pace year over year, coming in at $10.9 billion. The networking giant said net income was $1.8 billion, or $0.33 per share, down from $0.37 per share one year earlier. It also said that it will cut jobs in order to focus on core routing and switching businesses.

Though some analysts applauded the move to get back to fundamentals, the company also said it no longer has a revenue target of 12 percent to 17 percent year-over-year gains. It declined to give specific guidance for next year.

Canaccord Genuity tech analyst Paul Mansky downgraded shares of Cisco and reduced his price target from $24 to $20 following the earnings report. "Cisco has yet to offer an initial look into 2012 -- other than the $1B expense reduction. We view this omission as a next likely shoe to drop," Mansky said in a research note. Mansky downgraded Cisco shares from buy to hold.

Tech stocks declined Friday morning as exchanges slipped across the board, burdened by macroeconomic concerns. The Labor Department Friday said the Consumer Price Index creeped up by 0.4 percent in April, making for an overall 12-month price increase of 3.2 percent, the biggest year-over-year jump since before the recession. Stocks fell globally as well, as the European Union warned that bailouts of Greece, Ireland and Portugal as a result of the countries' sovereign debt burden could be larger than previously forecast.

Nevertheless, strong corporate earnings in IT, along with mergers and acquisition news, have kept the tech sector stoked. Computer stocks on the Nasdaq, for example, are up 6.32 percent for the year.

Join the newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection

Tags Microsoftbusiness issuesskypeintelfinancial resultssymantecCisco Systems

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Marc Ferranti

IDG News Service
Show Comments



Victorinox Werks Professional Executive 17 Laptop Case

Learn more >

Sansai 6-Outlet Power Board + 4-Port USB Charging Station

Learn more >



Back To Business Guide

Click for more ›

Brand Post

Most Popular Reviews

Latest Articles


PCW Evaluation Team

Louise Coady

Brother MFC-L9570CDW Multifunction Printer

The printer was convenient, produced clear and vibrant images and was very easy to use

Edwina Hargreaves

WD My Cloud Home

I would recommend this device for families and small businesses who want one safe place to store all their important digital content and a way to easily share it with friends, family, business partners, or customers.

Walid Mikhael

Brother QL-820NWB Professional Label Printer

It’s easy to set up, it’s compact and quiet when printing and to top if off, the print quality is excellent. This is hands down the best printer I’ve used for printing labels.

Ben Ramsden

Sharp PN-40TC1 Huddle Board

Brainstorming, innovation, problem solving, and negotiation have all become much more productive and valuable if people can easily collaborate in real time with minimal friction.

Sarah Ieroianni

Brother QL-820NWB Professional Label Printer

The print quality also does not disappoint, it’s clear, bold, doesn’t smudge and the text is perfectly sized.

Ratchada Dunn

Sharp PN-40TC1 Huddle Board

The Huddle Board’s built in program; Sharp Touch Viewing software allows us to easily manipulate and edit our documents (jpegs and PDFs) all at the same time on the dashboard.

Featured Content

Product Launch Showcase

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?