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Wall Street Beat: Mobile, cloud are key to tech earnings

Facebook, Microsoft, Apple and Amazon weigh in with earnings

By Marc Ferranti
April 25, 2014 04:56 PM ET

IDG News Service - 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.

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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