Tech Titans’ Earnings Keep Investors Upbeat
The good news is you’ve already heard the bad news.
Several technology titans, ranging from software giant Microsoft Corp. to profitable Internet rarity EBay Inc., reported quarterly earnings Thursday that in many cases beat grim expectations, cheering investors who have been searching for the market’s bottom.
“It’s a sign that things aren’t as bad as people had feared. It’s a bullish signal,” said analyst Christopher Galvin of J.P. Morgan, noting that Microsoft sales rose a better-than-expected 14% and that the company kept in place growth projections for the full year.
It was a second day of relatively upbeat earnings news from technology mainstays, following hopeful comments from IBM Corp. and AOL Time Warner Wednesday.
And in a sign of how low the standards for good news have fallen, shares of many of the companies rose simply because they did not forecast tougher roads ahead. For example, Microsoft’s earnings edged up 2.8% from a year earlier, while profit at high-end computer maker Sun Microsystems Inc. plunged 73%.
“It’s going to be another strong day for the Nasdaq [Friday]--three in a row,” Galvin said.
Not all the bad news has subsided. Several other tech giants, including personal computer maker Gateway Inc. and telecommunications equipment maker Nortel Networks Corp., disclosed more pain from the slowdown in technology spending.
Fred Hickey, editor of the High-Tech Strategist newsletter, cautioned that apparent modest improvements in the prospects of a number of still highly valued tech firms could be a trap for investors.
EBay, for example, still trades at more than 100 times its trailing 12-month earnings, implying that investors are banking on phenomenal growth. “If you don’t understand it’s a bubble, buy the stocks again and get slaughtered again,” Hickey said.
Having endured a week of earnings, “I would say it’s a mixed bag,” said Melissa Eisenstat of CIBC World Markets. “We’re not out of the woods yet, but the psychology seems to have changed.”
On Thursday, investors focused on the good, or at least the less bad.
Microsoft said its third-quarter profit rose to $2.45 billion, or 44 cents a share, from $2.39 billion, or 43 cents, last year. Analysts had expected 42 cents. Sales of the Windows operating system and other programs reached $6.46 billion, aided by purchases by corporate customers.
Microsoft said it expects to earn $1.90 to $1.94 a share in the year ending June 2002. The stock, which gained $2.61 to $68.04 in regular trading, rose as high as $72.25 in after-hours trading on the report.
“We’re finally starting to see [Microsoft] accelerate with their product cycle,” said Edward Dowd of Microsoft shareholder Independence Investment Associates.
Sun Microsystems, whose fortunes have fallen along with those of the dot-com companies that were some of its most loyal customers, said quarterly profit fell to $136 million, or 4 cents a share, as sales gained 2%, to $4.1 billion. Profit before adjustments for acquisitions and investments slightly beat Wall Street expectations, while sales missed the target.
“Revenues were a little light, but its hardly a shocker,” said J.P. Morgan analyst Daniel Kunstler. Analysts said Sun faces another two quarters of possible sales declines.
“People are trying to figure out how long it will take for them to fix it,” said Salomon Smith Barney analyst John Jones. “You can see that IBM is healthy and should continue to take market share. It’s unclear whether or not Sun and HP [Hewlett-Packard] are ready yet.”
Online auction leader EBay easily beat Wall Street expectations, earning $30.6 million, or 11 cents a share, excluding one-time expenses and other costs. Analysts polled by First Call/Thomson Financial predicted an average of 8 cents. In the year-earlier period EBay earned $4.4 million, or 2 cents a share.
Revenue soared 79% to $154 million. EBay also predicted revenue in the next two quarters “could be as much as $10 million to $15 million higher than previously anticipated.”
Shares of EBay jumped $4.24, more than 9%, to $49.99 in regular Nasdaq trading. In after-hours trading following the earnings report they reached $52.07.
“EBay’s performance in the quarter was outstanding and should merit significant investor attention,” said Derek Brown, analyst with WR Hambrecht & Co. “There’s a very real possibility that EBay becomes more valuable in a slower economy. Buyers become more interested in value and sellers become more interested in cash flow, in turning inventory into cash.”
Unlike other pure-play Internet leaders such as Yahoo Inc. and Amazon.com, “EBay has almost nothing to do with the online advertising market, no sales force, no inventory, no warehouses and no distribution concerns,” Brown said.
Deeply troubled Xerox Corp. also won over investors Thursday. The photocopier leader had a smaller-than-forecast first-quarter loss as it cut expenses and raised cash by selling assets. The stock soared $2.50, or nearly 40%, to close at $8.90 in NYSE trading after the report.
The company’s loss, excluding one-time expenses, was $86 million, or 12 cents a share, contrasted with profit from operations of $220 million, or 30 cents, in the year-earlier period. Analysts expected a loss of 28 cents. Revenue fell 7.7% to $4.16 billion.
President Anne Mulcahy said Xerox is ahead of schedule on its year-end goals. It has cut 4,300 jobs and is more than half way to $1 billion in cost cuts. Xerox began selling assets, firing workers and reducing expenses in October to help stabilize earnings.
Other tech players looked to be moving in the opposite direction.
Gateway, the second-biggest direct seller of personal computers, said it had a first-quarter loss because of falling sales, charges for bad loans, an acquisition and store closures.
The loss from operations was $6 million, or a penny a share, contrasted with a profit of $119.6 million, or 36 cents, in the year-earlier period. Sales fell 15% to $2.03 billion, and pretax charges of $533 million were more than expected.
Shares of San Diego-based Gateway rose 72 cents, or 4.2%, to $18.02 in regular Nasdaq trading but fell as low as $17 after hours.
Nortel Networks’ loss widened to $2.6 billion, or 82 cents a share, from $70 million, or 26 cents, a year earlier. Sales fell 2.3% to $6.18 billion. Nortel said it would cut an additional 5,000 jobs. It also declined to forecast second-quarter profit.
Other tech earnings reports:
*Commerce One Inc., whose software and consulting services help businesses create marketplaces on the Internet, said its first-quarter loss widened while sales jumped about fivefold as it added customers. The loss increased to $228.5 million, or $1.02 a share, from $43.6 million, or 29 cents, a year earlier, Commerce One spokeswoman Katie O’Connell said. Sales jumped to $170.3 million from $35 million.
*Conexant Systems Inc., the largest maker of chips for dial-up modems, said its quarterly loss widened to $262 million, or $1.08 a share, from $132.3 million, or 64 cents, in the year-ago period. Sales at the Newport Beach company fell 50% to $251 million. Conexant, whose chips also power computer-networking equipment and mobile phones, said it is getting fewer orders as customers deplete their inventories.
*EMC Corp., the largest maker of corporate computer-data storage systems, said quarterly profit rose 20%, less than half last year’s gain, as customers reduced spending. Net income increased to $398.8 million, or 18 cents a share, from $332 million, or 15 cents, a year earlier. Sales rose 29% to $2.34 billion.
*Emulex Corp., a Costa Mesa data storage equipment maker, said quarterly net income of $10.9 million, or 13 cents a diluted share, was in line with lowered expectations. Revenue rose to $60.4 million from $36.5 million a year ago. The year-ago third-quarter net income totaled $7.7 million, or 10 cents a diluted share.
*Inktomi Corp., whose programs speed delivery of Internet traffic, said its fiscal second-quarter loss widened and sales fell as telecom service providers spent less on software. The loss widened to $58.3 million, or 46 cents a share, in the quarter from $3.08 million, or 3 cents, in the year-earlier quarter, Inktomi said. Sales fell 16% to $39.5 million from $47.3 million.
*Transmeta Corp., whose microprocessors run laptop computers, said its first- quarter loss widened as sales rose. The Santa Clara company forecast little or no revenue growth in its second quarter from the first. The loss widened to $22.7 million from $20 million a year earlier. Sales rose to $18.6 million, or 50% more than its fourth-quarter sales, on demand for processors that compete with chips from market leader Intel Corp.
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Bloomberg News and Associated Press were used in this report.
