by Brad Moon | April 20, 2012 12:27 pm
A trio of veteran tech companies, once very closely associated as primary partners in the Windows PC business, released quarterly earnings this week. While the sector today has other dominant players — can you say Apple (NASDAQ:AAPL[1])? — analysts have long looked to Intel (NASDAQ:INTC[2]), IBM (NYSE:IBM[3]) and Microsoft (NASDAQ:MSFT[4]) as indicators for the tech sector’s health.
And they still merit close watching.
As some of the largest firms in tech industry — the world’s biggest chipmaker, the world’s No. 1 computer service provider and the leading PC operating system maker — their performance continues to offer insight into what to expect from tech stocks as a whole.
Intel released first-quarter 2012 results on April 17[5], reporting revenue of $12.9 billion, net income of $2.7 billion and earnings per share of 53 cents. It used $1.5 billion to buy back stock, while it paid out $1 billion in dividends in what the company describes as a growth year.
Quoted in ZDNet, Intel CEO Paul Otellini announced[6]: “We expect to see another important milestone for our business later this week. The launch of the world’s first Intel architecture based smartphone.” The Intel Atom-powered Lava Xolo X900[7] smartphone subsequently launched in India yesterday.
Intel faces an uphill battle in the smartphone and tablet markets, thanks to the multiyear head start enjoyed by ARM system-on-a-chip processors currently used in most of these devices — including those from industry leaders Apple and Samsung (PINK:SSNLF[8]). But Otellini & Co.’s long-awaited charge at mobile represents a significant growth opportunity for Intel. This year will see the launch of several other mobile partnerships, including the previously announced Orange smartphone[9] to be offered by France Telecom (NYSE:FTE[10]).
Intel’s first-quarter numbers came in slightly ahead of expectations, but its stock was down (currently around $27.70) after trading in the $28.50 range prior to the earnings report. While the company has weathered a PC industry that’s been in decline[11], any inroads in the mobile market — where Intel has been conspicuously absent — could be enough to see the stock gain traction with investors.
IBM shares might be worth considering right now: Its stock fell after the release of first-quarter 2012 results[12] on April 17 (the first operating quarter under the leadership of CEO Virginia M. Rometty[13]). Before the earnings announcement, IBM had been trading at $207.45. It dropped to $202.70, dipping below $197 yesterday. Although revenue was below what Wall Street had been expecting at $24.67 billion, earnings beat estimates at $3.3 billion (up 7%), or $2.66 per share.
While IBM’s traditional hardware business has been hurting (revenue in the division dropped 7% during the quarter), the company’s strategy of focusing on software and enterprise services continues to pay off. According to The New York Times, these are higher-margin businesses[14] and, along with expansion into developing markets, they’re seen by IBM as key to its future growth.
Once again, the numbers support this strategy, with the fall-off in hardware revenue compensated for by increases in services and software. While service revenue (57% of total revenue) was up only 1%, the division’s profits were up 11%. On the software side (which represents 43% of profits), revenue was up 5% and profits 12%.
In other words, IBM’s strategy seems to have legs. Despite the hit to hardware and lower overall revenue than had been expected, the company still came up big on profits, thanks to the emphasis on software, service and emerging markets.
On the markets’ “bizarro” Thursday, when the major indices were bouncing sharply, Microsoft announced its fiscal 2012 third-quarter results[15], surprising analysts with some record numbers, even as Apple shares dropped on the day to approach Monday’s low. It’s been a while since Microsoft’s stock was pushing higher after some big wins, while Apple’s stock price was taking a beating.
Microsoft’s quarterly revenue was $17.41 billion, up 6% compared to the same quarter last year, while operating income increased by 12% to $6.37 billion. Gains of between 4% and 14% were reported in most divisions (including Windows, whose sales increased by 4% in the quarter[16]). Net income declined to $5.11billion (from $5.23 billion), but Microsoft explained this was due to a tax settlement with the IRS. Earnings per share worked out to 60 cents — one cent less than this time last year, but more that the 58 cents that had been expected.
Microsoft is bringing a series of highly anticipated new products to market this year, including Windows 8 for PCs and tablets, and a new version of its flagship Office software suite. That bodes well for the bottom line as customers enter an upgrade cycle that should boost Windows and Office revenue down the road.
What CEO Ballmer would rather not have anyone focus on was the performance of the Entertainment & Devices division. Although Microsoft pointed out that the Xbox 360 remains the top-selling console in the U.S. for its15th consecutive month, the division’s $1.62 billion in revenue was down by 16% compared to last year.
And, as Engadget observed[17], Microsoft also didn’t offer much comment on the Windows Phone front. Probably a smart move, given the dismal results Windows Phone hardware partner[18] Nokia (NYSE:NOK[19]) just reported. Microsoft shares are up nearly 5% after the earnings announcement.
As of this writing, Brad Moon did not own a position in any of the stocks named here.
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