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Wall Street Beat: Tech bellwethers report mixed quarter

Marc Ferranti | April 22, 2013
Some of the biggest names in IT including IBM, Microsoft, Google and Intel reported quarterly earnings this week, revealing a picture of the tech sector that, while not as gloomy as had been feared, is nevertheless mixed.

Revenue from the software business was flat at $5.6 billion, and up 1 percent adjusting for currency. Other businesses did not fare as well. Global Technology Services revenue decreased 4 percent, down 2 percent adjusting for currency, while revenue from the Systems and Technology unit totaled $3.1 billion, down 17 percent, or 16 percent adjusting for currency.

The weakness in systems makes sense given U.S. government spending cuts that are part of the so-called "sequestration," Forrester's Bartels noted. "One of the easiest things for government agencies to cut back on is hardware," Bartels said. Services did not do as well as expected, perhaps a result of weakness in spending on software in the third quarter last year, and its subsequent effect on projects that required consulting services, Bartels noted.

Things were worse for chip makers Intel and Advanced Micro Devices, both dependent on the PC market. Intel on Tuesday reported that quarterly net income dropped year over year by 25 percent, to $2.05 billion, while revenue declined 2.5 percent to $12.6 billion. Intel is trying to get into the fast-growing tablet market, dominated by ARM chips, and expects to ship new smartphone and tablet chips to device makers this quarter.

AMD is also moving into new markets, having recently signed a deal with ARM to build low-power server processors around the U.K. company's architecture. Meanwhile, on Thursday it reported that quarterly revenue plunged year over year by 31 percent to $1.09 billion. It had a net loss of $146 million, improving on its loss of $590 million a year earlier by reining in costs.

Google results Thursday showed that the decline in average ad prices is easing up, suggesting that companies are paying more for ads that reach mobile devices. The cost of paid clicks fell by approximately 4 percent compared to last year, but the decline is better than the 6 percent drop Google reported during its last earnings report in January. Google's total first-quarter revenue rose by 31 percent to about $14 billion, while net earnings increased 16 percent to $3.35 billion.

Results for Google competitor Yahoo, now run by former Google executive Marissa Mayer, paled by comparison, though net earnings improved partly as a result of lower operating costs. Net earnings for the quarter jumped 36 percent to $390 million, though revenue fell by 7 percent during the quarter to $1.14 billion.

While Mayer trumpeted "stability in our business," it will take more than cost cutting to get sales on a growth track.

Next week, Apple results will give market watchers another look at not only computer sales, but sales of leading smartphones and tablets. Amazon, Texas Instruments, Qualcomm and VMware are also due to report.


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