Wall Street Beat: Recession Whacks IT Earnings

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Though Google, IBM and Apple offered scraps of good news this week, for the most part earnings reports from companies including Nokia, Sony, AMD and Ericsson were grim, illustrating the extent of the global economic downturn and its impact on technology sales.

IT investors on Thursday got hit with a tsunami of earnings reports for the quarter ending in December. Google's report was by far the most uplifting.

Google reported sales for the quarter of US$4.22 billion, an increase of 24 percent from the same period a year earlier. The figure exceeded analysts' consensus forecast of $4.12 billion, according to Thomson Reuters.

Google's net income was $382 million, or $1.21 per share, well below the $1.2 billion, or $3.79 per share, it reported a year earlier. However, on a pro-forma basis excluding one-time charges, earnings were $5.10 a share, up from $4.43 in the year-earlier period and well above the $4.95 pro-forma earnings analysts had forecast.

Google's good news aside, perhaps the most unsettling thing for IT investors about this earnings season is how many companies say they have little or no visibility into how business will go over the next few quarters. Even the few companies with positive reports this week expressed caution about the next few quarters.

"It's unclear how long the global downturn will last, but our focus remains on the long term," Google CEO Eric Schmidt said in a statement.

Microsoft, which is so good about managing earnings expectations that it usually provides an upside surprise for market-watchers, on Thursday issued a quarterly report that missed analyst expectations. The company said it could not quantify earnings-per-share guidance for the rest of the year because of "the volatility of market conditions."

Microsoft reported that revenue rose 2 percent to $16.6 billion for the quarter ended in December, while net income fell 11 percent to $4.17 billion or $0.47 per share. Analysts had expected the company to post earnings per share of $0.49, on revenue of $17.08 billion, according to Thomson Reuters.

AMD also issued a report Thursday that fell short of forecasts. The chip company reported that quarterly revenue fell to $1.16 billion from $1.74 billion a year earlier. Analysts had expected revenue of $1.23 billion. AMD also reported a loss of $1.42 billion, better than the $1.77 billion loss a year earlier. But excluding one-time charges, the loss amounted to $0.69 per share, worse than analysts' forecast of $0.54 per share.

There was plenty of evidence this week that vendors are getting hit globally as well. Consumer electronics giant Sony warned on Thursday it would report an annual loss for the first time in 14 years. Sony said it expects to post a net loss of 150 billion yen ($1.7 billion) for its fiscal year ending March 31. In October, it said it would generate a 50 billion yen profit. CEO Howard Stringer also said the company plans to add to the 16,000 layoffs it already has announced, though company officials did not reveal the extent of the additional cuts.

Finland's mobile-phone maker Nokia, meanwhile, Thursday reported a 69 percent drop in fourth-quarter net profit and said the market would contract further this year than previously expected. Nokia said profit for the December quarter dropped to €576 million ($749.8 million) from €1.84 billion in the year-earlier period. Sales declined 19 percent to €12.66 billion.

For its part, Swedish telecom equipment vendor Ericsson said Wednesday it posted net earnings of 3.9 billion kronor ($4.69 million) for the December quarter, compared to 5.6 billion kronor one year earlier, though sales increased by 23 percent to 67 billion kronor. The company said it will cut costs by laying off about 1,000 people.

Sales of hardware and mobile phones are forecast to slump this year, since it is generally thought that in times of recession, upgrades of PCs and mobile devices are among the first items on corporate and consumer budgets to get cut. But Apple defied the trend, Wednesday reporting that sales of Macs and iPhones for the December quarter fueled a 5.8 percent increase in sales and a 1.5 percent rise in profit, pushing revenue above $10 billion for the first time ever.

However, even this bit of good news was tempered by the company's caution. The company said both sales and profit would be lower in the current quarter than analysts have been forecasting. The company said revenue would be flat compared to a year earlier, at about $7.6 billion to $8 billion,on earnings per share of $0.90 to $1.00. Analysts had expected EPS of $1.13 on revenue of $8.2 billion.

IBM had good news Tuesday, reporting that net earnings for the quarter rose 12 percent to $4.42 billion, or $3.28 a share. Analysts had estimated earnings of $3.03 a share. The company reported that, partially due to an increase in the value of the dollar, revenue fell 6 percent to $27 billion, missing expectations by about a billion dollars.

But in a week where few companies appeared to have confidence about the rest of the year, IBM said it expects earnings of at least $9.20 a share, above analyst expectations of $8.75 a share. IBM's expectations, if they come to pass, support a central tenet held by many market observers this year: Large companies with broad product portfolios and worldwide reach are in the best position to weather the current downturn.

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