Wall Street Beat: Tech shares join market slump

Internet company earnings provide some bright spots

Though earnings from some tech vendors brightened up a week of tepid market reports, shares of IT companies broadly declined Friday along with the rest of the market.

The Nasdaq Computer Index closed at 1723.96, down 7.52 for the day and 11.93 for the week. The Dow Jones Industrial Average dropped 72.81 points to close at 15,425.51 and the Standard and Poor's 500 index declined 6.06 to close at 1601.42. Mediocre quarterly earnings and fears that the U.S. Federal Reserve will wind down its bond-buying strategy, intended to boost the economy, have weighed on markets recently.

IT spending and hardware shipment news was disappointing this week. In the second quarter, shipments of tablets, which have been the bright spot for hardware as PC sales slump, declined sequentially for the first time ever, according to IDC .

Worldwide tablet shipment growth declined by 9.7 percent from the first quarter to 45.1 million units. Since the tablet market is still only a few years old, sequential quarter-to-quarter data is still relatively important. However, tablet shipments were up 59.6 percent from a year earlier.

"A new iPad launch always piques consumer interest in the tablet category and traditionally that has helped both Apple and its competitors," said IDC analyst Tom Mainelli, in a research report. "With no new iPads, the market slowed for many vendors."

The tablet market is still evolving, and many vendors are still figuring out strategy, IDC noted.

"Apple aside, the remaining vendors are still very much figuring out which platform strategy will be successful over the long run," said Ryan Reith, in the report. "To date, Android has been far more successful than the Windows 8 platform. However, Microsoft-fueled products are starting to make notable progress into the market."

Meanwhile, the economic slowdown in China has led IDC to lower its forecast for global IT spending. IDC now forecasts IT spending growth of 4.6 percent in constant currency for 2013, down from the previous forecast of 4.9 percent growth and a decline from last year's growth of almost 6 percent.

Capital spending in China and other emerging markets shows signs of weakening from the rapid pace of expansion recorded since 2010, IDC said in the report. Meanwhile, PC sales face continued pressure from lower-cost tablets in the first half of 2013 and the rapid adoption of cloud services is cannibalizing revenue from traditional sales of software and IT services, IDC said.

Vendor earnings reports, meanwhile, were mixed. Graphics processor maker Nvidia Thursday said that revenue for the second quarter ending in July declined year over year to $977.2 million, while earnings declined 19 percent to $96.4 million.

Nvidia enjoyed double-digit sales increase of its graphics processing units but revenue from its Tegra line of mobile processors declined more than expected. Investors also appeared to be worried about increasing expenses. Nvidia shares declined Friday by $0.21 to close at $14.49.

The news from Shanghai-based SMIC -- Semicoductor Manufacturing International Corp. -- was better. Also reporting Thursday, SMIC, one of the largest contract semiconductor foundries in the world, said revenue for the quarter ending June rose 28.3 percent year over year to $541.3 million, while profit attributable to SMIC rose more than 10 times to $75.4 million from $7.1 million.

Tempering concerns about Chinese growth, CEO Tzu-Yin Chiu said in a statement that revenue from Chinese customers increased 60.6 percent year over year, contributing 40.9 percent of the company's sales.

Internet company earnings were a bit more uniformly upbeat. Groupon, the online group-deal purchasing site, reported that quarterly revenue increased 7.5 percent year over year to $601.4 million while losses declined from $11.7 million to $4 million. The earnings highlighted the importance of mobile communications to online company results.

"We had record mobile performance as 45 percent of our North American transactions came from mobile in March, and more than 7 million people downloaded our apps in the quarter." said CEO Eric Lefkofsky.

Groupon shares ticked up by $0.01 to close at $10.61

Other Internet companies announcing earnings included:

-- Priceline, the travel and vacation booking company, reported a 37.8 percent jump in revenue to $1.4 billion, while profit increased to $37 million from $352 million. Sales were fueled by strong summer travel bookings. Shares closed Friday at $969.90, up $36.15, nearing its dotcom era high of about $1,000.

-- Real estate site Zillow's quarterly revenue jumped 69 percent year over year to $46.9 million. Most of the site's traffic on weekends comes from mobile devices. Investors looked past a $10 million loss, mostly attributable to acquisition-related expenses and one-time stock-based compensation charges, and boosted company shares up by $5.11 to close at $94.10 Friday.

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Marc Ferranti

IDG News Service
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