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Wall Street Beat: Earnings point to tough quarter for tech

Marc Ferranti | Oct. 22, 2012
Some of the biggest names in tech reported quarterly earnings this week, and the resulting picture is not pretty. The main culprit for the weak earnings reported this week is a slump in the PC market, but uncertainty about the global economy is weighing down almost all sectors of IT.

The general decline in hardware sales has affected chip vendors. As expected, AMD Thursday reported that revenue declined due to both weak demand and lower selling prices -- a result of competitive pressure in a tough market. AMD earlier in the week put out preliminary results and Thursday's report confirmed the earlier figures. AMD total sales were $1.27 billion for the third quarter, dropping from $1.69 billion a year earlier, while the company reported a loss of $157 million. That compares with a profit of $97 million a year earlier. The company said it would lay off about 15 percent of its 11,813-employee workforce to cut costs and get back to profitability.

Intel, the world's biggest chip maker, said Tuesday that for the quarter ending in September, revenue dropped to $13.5 billion from $14.2 billion a year earlier. Profit also declined, to $2.97 billion from $3.47 billion.

"Our third-quarter results reflected a continuing tough economic environment," according to a succinct statement from CEO Paul Otellini. He did hold out some hope that ultrabooks, phones and tablets would help revive sales in the next few quarters.

It was also a tough quarter outside of the operating system, PC and chip markets, however.

Google, facing its own set of business issues, said Thursday that net income for the third quarter was $2.18 billion, down from $2.73 billion a year earlier. Revenue was up 45 percent year over year, at $14.10 billion. But subtracting commissions and other fees paid to advertising partners, revenue was $11.33 billion, below the consensus expectation of $11.86 billion from financial analysts polled by Thomson Reuters.

Google faces rising costs as it bulks up its workforce, ramps up R&D and absorbs Motorola Mobility. At the same time, the price of paid clicks -- the money Google charges advertisers when someone clicks on a search ad -- fell 15 percent during the last quarter. Several analysts appear to be willing to give Google more time to absorb Motorola and make the transition to the mobile world.

 "While the mobile transition is taking longer than anticipated, we believe the long-term opportunity is intact," said Canaccord Genuity Internet analyst Michael Graham in a research note.

Earnings season is not yet over. Next week, for example, Apple and Facebook are due to report, and market watchers will be keen to see positive signs.

 

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