Tech industry bellwethers, including Facebook, Microsoft, Apple and Amazon, weighed in this week with quarterly earnings and—surprise!—mobile and cloud offerings appear to be the key to their health.
The earnings came out amid some upbeat market research about IT spending trends. For example, Forrester Research reported Thursday that U.S. spending on technology will rise 5.3 percent this year to US$1.3 trillion and 6 percent to $1.4 trillion in 2015, due to an improving economy and a jump in IT purchases by businesses and government agencies.
Software will grow faster than hardware and “one of the hottest areas in software is unsurprisingly mobile apps which will grow by roughly 50 percent in 2014, reaching $7 billion,” Forrester said.
That good news comes on the heels of dismal forecasts for traditional desktop and laptop PCs. Last month, Gartner issued a forecast that calls for a 6.6 percent year-over-year decline in PC and laptop shipments in 2014. What’s more, the 276.7 million PCs shipped to retailers in 2014 will drop even further, to 263 million units, in 2015, Gartner said.
On its part, Forrester predicts that within the declining traditional computer category, laptop sales will rise modestly, by 2 percent this year.
“Meanwhile, tablet takeover will continue to march on, still led by Apple iPads but with Windows tablets from Microsoft, Dell, HP, and Lenovo and Android tablets from Samsung and others gaining share,” Forrester analyst Andrew Bartels wrote.
So it’s easy to see why the mantra of new Microsoft CEO Satya Nadella is “mobile-first, cloud-first world,” a phrase he used on the earnings conference call with analysts Thursday evening.
Sales growth for tablets and Windows helped Microsoft’s results which, while down year over year, were better than analysts expected. Revenue came in at $20.40 billion, down slightly from $20.49 billion in the same quarter last year.
Net income was $5.7 billion, or $0.68 per share, down from $6.1 billion, or $0.72 per share. Microsoft’s revenue matched the forecast of analysts polled by Thomson Reuters and beat their earnings-per-share estimate by $0.05 on a pro forma basis (that is, excluding the one-time charges that analysts also exclude).
A big bright spot for Microsoft was the Commercial division, where revenue rose on a pro forma basis by 7 percent to $12.23 billion. The increase was fueled by Office 365, the cloud and subscription suite of server and desktop productivity applications, and by Azure cloud platform services. In all, the Commercial division’s cloud revenue more than doubled.
Microsoft’s $7.5 billion acquisition of Nokia’s Devices and Services business closed Friday. While the company is trailing far behind Apple and Android-based products in the mobile market, a recent slowdown in smartphone innovation may give Microsoft an opportunity. For example, its competitors recently have been trying to differentiate themselves on the basis of camera technology—an area where Nokia has solid expertise.
Microsoft shares closed Friday at $39.91, up by $0.05.
Also reporting Thursday, Amazon said revenue for its latest quarter rose 23 percent year over year to $19.74 billion, beating analyst estimates of $19.4 billion. Net income was $108 million, compared to $82 million a year earlier.
It’s hard to say exactly how much the company’s cloud computing business adds to the bottom line since numbers for Amazon Web Services are not broken out separately—they are lumped in with the “other” category. But sales in that category rose 58 percent year over year to $1.26 billion, and Web Services, according to company officials, plays a big part in that.
However, excluding one-time transactions, Amazon operating profit, weighed down by spending, dropped 19 percent to $146 million. The decline weighed heavily on Amazon shares Friday, which closed at $303.83, down $33.32.
Advertising business on mobile devices, meanwhile, helped Facebook report a solid quarter.
Net income was $642 million, up by close to 300 percent from the $219 million a year earlier.
Facebook of course makes most of its revenue from advertising and last quarter total advertising was up by 82 percent year over year to $2.27 billion. The key figure: mobile advertising was about 59 percent of that total.
The best may be yet to come for Facebook, if CEO Mark Zuckerberg is to be believed. He said on the company’s conference call that Facebook is still in a phase where it is trying to increase the user base for many of its services and hasn’t even really tried to monetize them yet.
Facebook shares closed Friday down by $3.16 to $57.71.
Meanwhile, smartphone sales were key to earnings for the world’s largest tech company as measured by market capitalization (number of shares times share price)—Apple.
Apple, whose market cap Friday edged over a half-trillion dollars, said Wednesday that net quarterly profit was $10.2 billion for the second fiscal quarter of 2014, up from $9.5 billion a year earlier. Revenue was $45.6 billion during the quarter, up from $43.6 billion. Analysts had been expecting revenue of $43.5 billion.
The iPhone was clearly the star of the show. IPhone shipments jumped to 43.7 million units, up from 37.4 million a year earlier. They made up for a decline in iPad shipments to 16.35 million units, falling from 19.48 million units.
Bucking the hardware trend, Mac shipments rose to 4.13 million units during the quarter from 3.95 million units a year earlier.
Apple shares closed up by $4.17 at $571.74 Friday.
Despite the bright spots in the earnings this week, the Nasdaq Computer Index closed down Friday by 29.01 points, to 2036.35, with Amazon blamed for putting a damper on the index.