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Wall Street Beat: Despite Apple's fall, Microsoft profit drop, tech sales do well

Marc Ferranti | Jan. 28, 2013
Generally strong vendor reports help boost markets to levels not seen since before the Great Recession

Despite Microsoft's quarterly profit decline and Apple's fall Friday from its position as the world's most highly valued company, this week's wave of earnings reports was strong, boosting markets to highs not seen since before the recession.

There are big questions surrounding Apple and Microsoft, but their sales rose year over year in the last calendar quarter of 2012, and earnings reports this week from IBM, SAP and Google were solid.

Apple shares declined about 10 percent Thursday after the company reported fourth-quarter 2012 sales and issued guidance that fell short of high expectations. As a result, Exxon Mobil Friday reclaimed at least briefly its position as the world's most valued company in terms of market capitalization (number of shares outstanding multiplied by the value of those shares). In midday trading Friday, Exxon had a US$417.59 billion market cap; Apple's was $412.36 billion.

Apple on Wednesday reported revenue of $54.5 billion for the quarter ended Dec. 29, up from $46.3 billion a year earlier. However, profit was flat year over year at $13.1 billion, as earnings from the Mac and iPod lines declined.

The company gave revenue guidance in a range of $41 billion to $43 billion, below the $45.9 billion analysts were expecting for the current quarter.

The company appears to be falling victim to the law of big numbers: The bigger a company gets, the harder it is to maintain the sort of percentage increases for growth it used to achieve as a smaller company. Investors are getting spooked by the prospects of a slowdown in growth for the company.

Cooler heads are pointing out, however, that the company still has strong products likely to come out later this year.

"We maintain our belief Apple has a strong product pipeline that should result in reaccelerating Y/Y earnings growth during the June quarter," wrote Canaccord Genuity analyst T. Michael Walkley in a research note. "We reiterate our BUY rating, but lower our price target to $650."

Microsoft, reporting quarterly earnings Thursday, stumbled on profit. Net income shrunk to $6.38 billion from $6.62 billion a year earlier. The last few months were important for Microsoft, as they were the first time the company reported financial results that included Windows 8 -- the touchscreen-oriented OS that represents a big effort to make headway in the post-PC era.

Despite the earnings decline, the company's Windows division generated sales of $5.88 billion, up 24 percent year on year. Even taking out the so-called deferred sales for software ordered earlier but officially accounted for during the quarter, revenue for the unit was up 11 percent.

Overall revenue for Microsoft increased 2.7 percent to $21.46 billion in the quarter. Microsoft fell victim to the law of big numbers more than a decade ago. Now the question is whether its round of upgrades geared for the tablet and mobile era can compete with products from Apple and vendors betting on the Android mobile OS.


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