Growth, but not enough, at Microsoft and Google
International Herald Tribune - By Brad Stone Published: July 18, 2008
Steve Ballmer, chief executive of Microsoft, which posted a 29 percent increase in quarterly profit but issued a forecast below Wall Street expectations for the current quarter. (Armando Arorizo/Bloomberg News)
SAN FRANCISCO: Like two straight-A students who uncharacteristically fail an exam, the technology titans Google and Microsoft issued quarterly results that disappointed investors.
Microsoft, which is engaged in a bruising takeover battle with Yahoo, topped $60 billion in revenue for its complete fiscal year for the first time. But it missed Wall Street’s profit expectations amid rising expenses and an uncertain advertising climate.
The mixed results announced Thursday drove the company’s stock down more than 6 percent in after-hours trading.
Microsoft’s nemesis, Google, fared little better. It also posted strong quarterly growth, reporting $3.87 billion in revenue, excluding the commissions it pays to advertising partners, which was in line with forecasts.
But Google also reported expenses that were higher than expected, along with lower-than-anticipated income from the interest on its pile of cash, causing the company to miss Wall Street’s expectation for earnings per share.
Google investors punished the stock after hours. It was trading around $493 a share, a decline of more than 7 percent.
Under more sanguine circumstances, the two reports of largely healthy earnings from Microsoft and Google may have soothed investors.
But with what seems like a daily dose of bad economic news, Wall Street has been quick to react negatively when Internet companies show signs of weakness.
EBay posted disappointing results this past week, and on Thursday, ValueClick and Looksmart, two companies in the display advertising business, said their profits were being hurt by the economy. The news sent their shares tumbling.
And after Advanced Micro Devices reported a loss of $1.18 billion in the second quarter, the company’s board ousted Hector Ruiz as chief executive and replaced him with Dirk Meyer, a star engineering executive at the company. Thursday’s result was AMD’s seventh consecutive quarterly loss.
Google executives argued that they were more protected than rivals against choppy economic waters.
“We don’t believe we are inoculated from global economics, but we do believe if there is a worsening, we do better than anyone else in the ad industry,” Eric Schmidt, Google’s chief executive, said in an interview.
For Microsoft’s part, the news was also largely positive. Profit rose for the quarter based on strong PC sales in developing markets and rising demand from corporate customers. The company reported a net profit of $4.3 billion in its fiscal fourth quarter ended June 30, versus a profit of $3.04 billion in the same period a year ago. Revenue rose 18 percent to $15.84 billion.
But analysts said that while the company’s business was sound, it appeared to have lost control of expenses during the quarter.
Another technology giant, IBM, is clearly benefiting from its global advance; it beat Wall Street’s estimates soundly on Thursday. The company said that its net income rose 22 percent in the second quarter compared with a year ago, to $2.77 billion, or $1.98 a share. Analysts had expected $1.82 a share, according to a survey by Thomson Financial.
With two-thirds of its revenue coming from overseas, IBM is benefiting from its role in building out the infrastructure in developing nations. Within the United States, it has focused on energy efficiency and cost savings.
John Markoff and Laurie J. Flynn contributed reporting.
source: IHT
