Wall Street Beat: Tech results mixed, but show areas of strength

IPOs by Kayak and Palo Alto Networks do well Friday despite economic headwinds

Quarterly earnings from some of the biggest tech companies in the world this week were decidedly mixed, but showed some signs of strength, particularly in enterprise IT spending.

Tech vendors with exposure to the hardware market have suffered as sales of PCs flatten out in the face of competition from Web-connected mobile devices and economic uncertainty, especially in Europe.

"As we look ahead at to the second half of the year, consumer market growth in Western Europe and North America is not forecasted to recover as fast as we had anticipated. Worldwide enterprise demand is growing as expected," said Intel CEO Paul Otellini on the company's earnings conference call Tuesday, according to a Seeking Alpha transcript. "We are now expecting full-year revenue growth in the 3% to 5% range versus our prior expectation of high single digits."

For the second quarter ending in June, Intel's net profit was down 4 percent year over year to US$2.8 billion. Nevertheless, revenue was $13.5 billion, up 3 percent.

Intel rival Advanced Micro Devices on Thursday said that quarterly profit declined 40 percent year over year to $37 million. Revenue dropped 10 percent to $1.41 billion. AMD CEO Rory Read lay the blame on flagging growth in China and Europe and a weak consumer PC market.

Company officials forecast current quarter revenue to be anywhere between 2 percent growth to a 4 percent decline from the second quarter.

The other big disappointment this week was Nokia's earnings announcement Thursday, when it reported a 19 percent year over year decline in revenue, to ¬7.54 billion (US$9.5 billion). Its net loss worsened, to ¬1.53 billion from ¬492 million a year earlier.

Though the smartphone market is booming for Apple and Android-based devices, Nokia is playing catchup in the market for higher-end devices. The company is pinning its hopes on convincing developers and operators to create a "third ecosystem" in the smartphone market, making room for Windows Phone devices. But Nokia forecast that the operating loss in its phone business will continue at the same level through the third quarter, possibly worsening.

Some analysts still insist that Nokia is making good choices, however.

"The release of Windows 8 across multiple platforms, including the new Surface tablet, will provide the consumer with more exposure to OSs unique features and benefits, and will give the boost in sales that Nokia needs," said Informa Telecoms & Media analyst Julian Jest in an email report.

Otherwise, there were bright spots amid the week's gloom. IBM Tuesday reported mixed results for the second quarter but remained positive for the rest of the year. Revenue for the second quarter was down 3 percent year over year to $25.8 billion. But net income was $3.9 billion, up from $3.7 billion in the second quarter of 2011.

Though key product segments including hardware and services showed weakness, investments in growth markets including Brazil, Russia and India helped the bottom line. Sales in those markets, as well as in Asia, were up. IBM said it now forecasts 2012 operating earnings to be at least $15.10 per share, up $0.10 from prior estimates.

Microsoft, meanwhile, on Thursday reported its first loss ever as a public company. Revenue in the quarter ending June 30 rose 4 percent to $18.06 billion, but the company registered a net loss of $492 million, or a $0.06 per share.

However, looking behind the headline numbers, the results are not as bad as might appear at first glance. Two extraordinary items affected the results. A $540 million [m] revenue deferral hit the company's sales figure for the quarter, while a $6.19 billion charge for the impairment of goodwill on its online services division affected the company's profit.

The goodwill impairment was logged mainly to recognize that Microsoft's 2007, $6.3 billion purchase of aQuantive did not result in a forecast growth for the online business. However, excluding those two items, revenue would have been $18.59 billion and earnings per share would have been $0.73, above analyst expectations.

Enterprise software sales have generally been strong this season. Storage and enteprise software vendor EMC this week, reporting preliminary quarterly results as it announced a management shakeup, said it generated $5.31 billion in revenue, a year over year rise of 10 percent, for the latest quarter, while earnings per share excluding one-time items were $0.39, up 11 percent.

On the online front, Google turned in a solid quarter even though its cost-per-click -- what it earns from advertisers -- was down 16 percent. For the second quarter, its first including sales from Motorola Mobility, profit increased year over year by 11 percent to $2.79 billion. Costs-per-click in the mobile world so far have proved to be less than in the traditional PC world. But even so, Motorola brought in $1.25 billion in revenue, which totaled $12.21 billion. Even without Motorola, Google would have surpassed the $9.02 billion in revenue for the prior-year quarter.

In a generally down day for the markets, Google shares rose by $17.76 to $610.83 in Friday afternoon trading. U.S. exchanges were down after news that a Spanish region asked the Madrid government for financial aid, sparking new fears about Europe's economic crisis. Nasdaq computer stocks were down in aggregate by 0.94 percent.

Despite the economic headwinds, initial public offerings Friday from travel website Kayak Software and network security vendor Palo Alto Networks were doing well. Palo Alto was trading at $56.48 in afternoon trading, up 34.4 percent from its opening price. Kayak was trading at $33.99, up by 30 percent.

Next week, FaceBook, Motorola, Apple, and Texas Instruments continue the wave of earnings announcements.

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

Marc Ferranti

IDG News Service
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