Wall Street Beat: Mixed tech earnings earn tepid reaction

Major vendors reporting this week included Microsoft, IBM, Intel, AMD, Yahoo, Qualcomm and EMC

Some of the biggest names in IT reported mixed results this week for the first quarter, leading to a dip in tech stocks Friday even as some major indexes showed gains for other sectors.

The Nasdaq Computer index was down 10.80 points to 1,639.21 at the close of trading Friday. As IT sales results were mixed, so too was market reaction. Of major tech vendors reporting results this week, Microsoft ended up by US$1.41 to $32.42 and Yahoo ticked upward by $0.21 to $15.60. However, Intel was down $0.09 to $27.60; Advanced Micro Devices was down $0.21 to $7.76; EMC dropped $0.20 to $27.90 and Qualcomm was down $0.31 to $62.25.

The tepid reaction to tech came as broad indexes including the Standard and Poor's 500 made gains for the day and the week. Those gains were part of a generally positive mood on the markets at the end of the week, as signs of good news in Europe helped quell fears that recession and sovereign debt default would drag down sales for major U.S. companies.

For example, several major newspapers, attributing Russian Deputy Finance Minister Sergei Storchak, reported that finance officials in the Group of 20 industrial and developing countries are working to aid the International Monetary Fund plans shore up countries that are in danger of defaulting on debt to international lenders. In addition, various surveys from Europe reported that German business confidence rose in April, and that retail sales in the U.K. for March beat expectations.

Microsoft, which reported Thursday that Windows sales to corporations in the first quarter were strong, was one of the major tech vendors that appeared to avoid the downbeat attitude toward tech.

"The business PC is what really drove the Windows business," said CFO Peter Klein, according to a Seeking Alpha transcript of the company's earnings conference call.

"And so if you think about the Windows revenue growth being really on the high end of our estimated PC shipment range, it's really a function of: one, business PC is really doing well relative to consumers. And again, that's consistent with the theme we've seen on businesses investing in their technology," Klein said.

Profit dipped year-on-year to $5.11 billion from $5.23 billion, but mainly as a result of a tax break the company took last year, without which net earnings would have increased this year. Revenue increased 6 percent to US$17.41 billion in the quarter.

Strong enterprise sales did not appear to help other vendors in the stock market, however.

For example EMC, considered a strong indicator for enterprise tech sales because of its strength in industrial-grade storage, Thursday reported its ninth consecutive quarter of year-over-year, double-digit revenue growth. Sales for the quarter jumped 11 percent to $5.1 billion, while net income rose a healthy 23 percent to $587 million.

Meanwhile IBM, a major bellwether for corporate IT sales due to its broad product portfolio in hardware, software and services and global reach, reported Tuesday that quarterly revenue stayed flat year over year at $24.7 billion, but that net income rose 7 percent to $3.1 billion. Software was key to the quarter as middleware sales were particularly strong, rising 7 percent year over year to $3.5 billion. Hardware, however, did not do as well as sales for the Systems and Technology division declined 7 percent to $3.7 billion.

For Intel, the main bellwether vendor for PC and server chip sales, quarterly profit declined year over year, from $3.16 billion to $2.9 billion. The company reported Tuesday that revenue was flat at $12.9 billion. However, the results beat expectations of analysts who had feared worse. Hard drive shortages in the wake of Thailand floods have crimped hardware sales and were expected to affect chips sales as well. But excluding one-time items, Intel earnings per share were $0.56, while analysts polled by Thomson Reuters forecast EPS of $0.50.

Other tech vendors reporting results this week included:

--AMD, which Thursday reported a quarterly net loss of $590 million, down from a $510 million profit a year earlier. The loss was mainly due to costs related to its spinoff of GlobalFoundries and its SeaMicro acquisition. Revenue was $1.59 billion, down from $1.61 billion.

--Nokia, which on Thursday reported that sales plunged 29 percent year over year to €7.4 billion (US$9.7 billion), resulting in a loss of €929 million. The company still depends on sales of lower-priced phones, as Windows-based devices have yet to take off.

--Qualcomm, the mobile device chip designer, blew away expectations Wednesday when it announced a 123 percent year-over-year jump in profit, to $2.23 billion, on a 28 percent rise in revenue, to $4.94 billion, due to what it called strong demand for both 3G and 4G devices across developed and emerging markets.

--Yahoo, which Tuesday also beat analyst forecasts by announcing profit of US$286 million, up 28 percent year over year, on revenue of $1.2 billion, up 1 percent.

Though the market reaction to the mixed tech results this week was tepid, there still appears to be underlying confidence in the sector. Despite Friday's declines, computer stocks on the Nasdaq are still up about 19 percent for the year, the biggest gain for any major industrial sector on the major U.S. exchanges and indexes.

Earnings season is not over, however. Among the high-profile tech vendors reporting next week will be the closely-watched Apple, the most valuable company on the planet in terms of market capitalization.

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Marc Ferranti

IDG News Service
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