Wall Street Beat: Tech shares tread water amid mixed earnings

Reports from Apple, Facebook, SAP and other major vendors are not strong enough to lift gloom

Tech stocks were flat Friday afternoon after earnings announcements from IT vendors this week and a government economic report offered glimpses of good news, but not enough to dispel the pall that hangs over the technology market.

Apple, Facebook, SAP and other major vendors reported mixed third-quarter earnings this week. They followed a string of disappointing earnings announcements from other IT heavyweights this season including Microsoft, IBM and Intel.

In late Friday afternoon trading, The Nasdaq Computer Index gained 1.20 points to 1,569.17, about where it was a week earlier. While computer stocks are still up by 13 percent for the year, they were up by more than 25 percent for the year a little more than a month ago.

The U.S. Department of Commerce said Friday that the U.S. economy expanded at a 2 percent annual rate from July through September, up from a 1.3 percent rate in the prior quarter. But in the tech sector, PC sales are down from last year and large companies are showing some hesitation to expand IT purchases.

Many computer buyers last quarter held off purchases as they waited for a new generation of PCs based on Windows 8 to be released. Windows 8 was released Friday and a slew of products from hardware vendors are following.

Meanwhile, the so-called "fiscal cliff" -- a series of drastic U.S. budget cuts that will go into effect next year if a political compromise on taxes and spending is not worked out -- has appeared to make enterprises cautious about large-scale IT purchases.

The transition to Windows had an effect on Taiwan-based PC maker Acer, which this week said it managed to squeeze out a profit after a year-earlier loss. Sales slumped as it made the transition to a new line of laptops, tablets and all-in-one PCs based on Windows 8. Acer's net profit for the third quarter reached NT$68 million (US$2.3 million) up from a year-earlier loss of NT$1.1 billion. Revenue was down 11.4 percent year over year to NT$104.4 billion.

One good sign this week came from Samsung Electronics, which said Friday that third-quarter net profit jumped 91 percent to 6.56 trillion won (US$6 billion). Sales were up 26 percent year over year to 52.2 trillion won. The good results were attributed largely to healthy sales of its Galaxy S III phone and its Note line of tablets. The latest device, the Note 2, has garnered early praise and strong sales, analysts noted.

Apple results this week disappointed, even though the company had its best quarter ever for both sales and profit. Sales of iPhones and iPads fueled a 27 percent year-over-year jump in quarterly revenue, to $35.97 billion. Net profit came in at $8.2 billion, up from $6.6 billion. However, profit was below analyst expectations and the company's earnings guidance for this quarter also came up short compared to expectations.

One of Apple's main problems is that component supplies are constricting production and it was not able to meet demand.

Apple shares were down by $2.16 to $607.37 in Friday afternoon trading. Some analysts maintain a positive outlook, however.

"Given management comments of quickly improving iPhone 5 supply and our checks indicating record demand, we believe Apple's Q1/F2013 guidance could prove conservative," said Canaccord Genuity's Michael Walkley in a research note Friday. "We maintain our belief Apple is well positioned for strong F2013/14 earnings growth driven by new product launches across its portfolio."

Enterprise software has been one of the bright spots for tech this year and this week was no exception, with SAP reporting its best third quarter ever. Revenue increased year over year by 16 percent to A!3.9 billion (US$5 billion). Software sales increased 17 percent to A!1 billion. Profit declined 51 percent to A!618 million, due mainly to one-time charges associated with its Ariba acquisition and a comparison to the quarter last year when income was boosted due to a reduction in provisions for its lawsuit with Oracle.

However, SAP said sales of it HANA in-memory computing platform and mobile-related sales were on track to meet expectations. The company boosted its revenue growth forecast to 10.5 percent to 12.5 percent in constant currency and non-IFRS (international financial reporting standards) terms. The prior forecast was for 10 percent to 12 percent growth and did not include income from Ariba, the cloud-based collaborative commerce applications company.

In the online arena, Facebook results this week caused some good cheer. Revenue for the third quarter rose 31 percent year over year to $1.26 billion.

Hit by stock-based compensation charges, the company suffered a net loss of $59 million. But the company had good news related to its mobile efforts, a key area of potential growth since many users are now accessing Internet services on mobile devices. Mobile ad sales accounted for 14 percent, or about $150 million, of revenue and monthly mobile users rose 61 percent to 604 million. Company shares jumped by $3.48 to $22.23 Wednesday, the day after the earnings announcement, though they drifted down a bit toward the end of the week.

Copyright © 2012 IDG Communications, Inc.

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