Wall Street Beat: Tech stocks show some resilience

Some tech-vendor shares do well, but Google is a big loser in the wake of its earnings report

Despite an unusual earnings miss Thursday by Internet bellwether Google, continuing geopolitical turmoil and disappointing news for the PC market, IT is demonstrating continuing resilience as tech stocks in certain sectors moved higher Friday.

High energy prices and component supply disruptions caused by the tragic earthquakes in Japan have roiled corporate share values worldwide in recent months. Crude oil prices set new 30-month highs this week, with per-barrel prices jumping past US$112 Friday, largely due to concerns about political unrest in the Middle East and Africa, where pre-election violence in Nigeria threatens to disrupt supplies.

Nevertheless, the tech-heavy Nasdaq closed Friday at 2,764.65, up 4.43 for the day. Computer stocks on the exchange are still up by about 3 percent for the year. Tech, media and telecom stocks on the New York Stock Exchange are up by about 4.89 percent for the year.

Google was one big exception to the generally upward trend for tech Friday, as investors appeared to punish the company for earnings that did not live up to forecasts by industry analysts. Google shares ended up at $530.70, down by $47.81.

Even though Google's first-quarter profit rose 17 percent from last year, to $2.3 billion, earnings per share of $8.08 fell short of the $8.11 expected by analysts polled by Thomson Reuters. Greater-than-expected costs, including the hiring of almost 2,000 new employees, contained profit margins.

Apparently overlooked Friday was Google's revenue, which at $6.54 billion for the quarter exceeded analyst expectations of $6.32 billion. Arguably, sales are a better indicator of long-term growth prospects than net income. While earnings figures are essentially a function of how companies account for costs and expenses, companies cannot grow unless sales expand.

Company officials stressed that sales growth was due in large part to growth of new businesses. "We experienced continued solid growth in our core, but also very strong growth in our emerging businesses year over year," Chief Financial Officer Patrick Pichette said on an earnings conference call Thursday. "(For) YouTube specifically, we continue to see very impressive growth as brand advertisers also consider it a must-buy."

Investors have been waiting to hear news about growth in Google's non-search businesses. Even so, the decline in share value Friday as investors dumped Google stock resulted in more than $14 billion of market capitalization (share value multiplied by the number of shares on the market) evaporating.

Market analysts this week also delivered bad news for the PC market. Global PC shipments declined 3.2 percent during the first quarter of 2011, to 81 million units, compared to the same period last year, according to an IDC report Wednesday. IDC had expected 1.5 percent growth.

Contributing to the PC slump were factors including cautious spending by businesses recovering from the recession, a lack of new technology on the market as well as macroeconomic issues such as rising fuel prices and the disruptions in Japan component supplies, IDC said. Gartner also reported a slump in PC shipments.

While shares of PC makers like Hewlett-Packard and Dell slumped in the wake of the reports, chip makers are ending the week on a positive note. Trading in Nvidia shares was heavy Friday, with company shares closing at $18.72, up $0.21. Intel shares closed at $19.73, up by $0.15.

The continuing confidence in chip makers is likely due to booming sales of smartphones and tablet devices. On Thursday, the Semiconductor Industry Association (SIA) said that revenue from global semiconductor sales will reach a record high of $319 billion this year and $330 billion in 2012, as orders increase for mobile devices such as smartphones and tablet PCs.

Optimism about tablets may end up helping Research in Motion, even though its BlackBerry PlayBook tablet, to be released next week, was largely panned by critics. In trading right after the markets closed Friday, RIM shares moved up by $0.20 to $53.60, more than making up for a decline during the day.

The tablet market will be big enough for several players to succeed, according to analysts.

"We see this as a marathon, not a sprint," said Sarah Rotman Epps, an analyst with Forrester Research. "There will be room for Apple and two other major competitors, and RIM may be one, though not with this first product."

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Marc Ferranti

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