Wall Street Beat: Transition to mobile, cloud hits tech earnings

Tech bellwethers weigh in with second-quarter sales

With Google, IBM, SAP, Intel and other tech titans reporting earnings this week, the focus is again on mobile and cloud technology. The general trend appears to be that the further a tech vendor has moved away from its legacy desktop-oriented products, the better its earnings are.

IBM has launched ambitious cloud and mobile initiatives -- but the resulting products are not quite fully baked. IBM officials themselves acknowledge as much, with IBM CEO Ginni Rometty talking about "positioning ourselves for growth over the long term" in the company's earnings release Thursday.

Earlier this year, IBM announced a global competition to encourage developers to create mobile consumer and business apps powered by its Watson supercomputer platform. Just this week, IBM and Apple said they are teaming up to create business apps for Apple's mobile phones and tablets.

But such projects have a ways to go before they reach fruition. Meanwhile, IBM revenue growth is flagging. Its second-quarter revenue was US$24.4 billion, down 2 percent year over year. Profit jumped 28 percent year over year, to $4.1 billion, but that was mainly because it compares to a quarter when net earnings were unusually low due to a billion-dollar charge the company took for workforce rebalancing.

Though both revenue and profit beat analyst forecasts, at first blush investors appeared disappointed, driving down IBM's share price overnight. IBM shares gained back ground Friday but in early afternoon trading were still down by $0.60 at $191.89.

SAP seems to be riding the transition to cloud while incrementally boosting revenue. The company Thursday reported that, though software revenue continued to decline, cloud-based sales rose.

The maker of ERP (enterprise-resource-planning) software reported that revenue rose by 2 percent year over year to €4.2 billion (US$5.7 billion) in the quarter. SAP's cloud subscription and support revenue was €241 million in the quarter, up 52 percent. Due to provisions for its patent dispute with software maker Versata, however, its net profit dropped year on year by 23 percent to €556 million.

As usual, Google was the earnings star of the week, reporting Thursday that its core advertising business fueled a 22 percent year-over-year increase in sales, to $15.96 billion. Profit was $3.42 billion, up almost 6 percent year over year.

It's hard to say how much of this is due to mobile, since Google does not break out numbers for mobile and desktop ads. However, Google has been working on a range of projects designed to get its software on mobile devices. Many of those projects are years away from contributing significantly to the company's bottom line, so for now the company essentially runs on its tremendous ad business.

One issue is that ads on mobile devices cost less than ads for other platforms and as a result, even as the company successfully makes the transition to mobile, the average cost-per-click of its ads went down by about 7 percent last quarter. Google officials say that as mobile computing becomes more imbued with work and recreation, ads on mobile platforms will become more remunerative.

Investors seem to agree, as Google shares rose Friday by $21.09 to hit $601.90 in afternoon trading.

On its part, Yahoo said Tuesday that sales for the second quarter were $1.08 billion, down 4 percent year over year, while revenue excluding traffic acquisition costs was down 3 percent to $1.04 billion.

During her two-year tenure as CEO, Marissa Mayer has revamped cloud and mobile services such as Flickr, launched digital video projects and overhauled its news strategy, but critics point to a lack of a coherent strategy. Company shares are being kept afloat due in large part to its huge stake in Chinese Internet giant Alibaba, which is about to go public in the U.S.

One area of tech that bucked the general trend for cloud- and PC-related sales was the market for semiconductors, which was given a boost by unexpected good news for PC sales during the second quarter. While market research firms had slightly different numbers, it appears that the decline in PC sales halted, or nearly so, in the quarter thanks in part to the move to replace aging Windows XP PCs.

The better-than-expected PC market helped Intel, which is in the middle of its transition to offering a wide range of components for mobile devices. Intel Tuesday reported a profit of $2.8 billion, up a whopping 40 percent year over year, while revenue was $13.8 billion, up 8 percent.

Intel rival Advanced Micro Devices said Thursday that second-quarter revenue was $1.44 billion, up 24 percent year over year. Unlike Intel, though, its PC chip sales declined, and due in part to costs associated with restructuring and debt, it suffered a net loss of $36 million.

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Tags business issuesYahooGoogleIBMAdvanced Micro DevicesSAPfinancial resultsintel

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Marc Ferranti

IDG News Service
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