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Wall Street Beat: Stocks tank as tech earnings look mixed so far

Marc Ferranti | Jan. 27, 2014
Microsoft shares provide a bright spot as other tech stocks decline

Samsung said earnings were curbed by marketing costs and an unspecified one-time expense.

The tough quarter for Samsung and Nokia was especially disappointing because the fourth quarter is usually a strong one for phones and devices, as consumers shop for the holidays.

In a reminder of how profitable software is compared to hardware, SAP said Tuesday that although fourth quarter revenue was up only 2 percent, to €5.1 billion, net profit jumped 20 percent to €1.3 billion. The company experienced a 2 percent decline in software revenue to about €1.9 billion, but said cloud subscriptions and support revenue skyrocketed by 66 percent to €209 million.

SAP expects to increase its total revenue to at least €22 billion (US$30 billion), compared to €16.8 billion in 2013. Revenue from its cloud business is forecast to rise to €3.5 billion by 2017.

The shift to cloud in the company's revenue mix is considered a good thing by analysts, though the healthy earnings report did not help company shares Friday. SAP closed Friday at $77.47 on the NYSE, down by $2.18 for the day.

Stocks have been declining all week, with the sell-off intensifying globally Thursday on fears about slowing growth in China. Reports showed signs that manufacturing was declining in the country. China is a huge importer of raw materials and a big tech market. In addition, values of currencies in emerging markets including Turkey, Russia, South Africa and Argentina dropped.

The U.S. economy is growing, leading the Federal Reserve to taper its bond-buying program to buoy the stock market, but concerns remain about other economies.

"Fed tapering has been well flagged, the recovery in growth continues and fiscal issues have been (at least for now) largely resolved. In two other areas of the world, however, prospects look less clear," according to an EFG Capital Advisors research note on the 2014 global financial outlook. "In China, a hard landing has been talked about and avoided for many years but many are still fearful of such an outcome. They point to issues with rebalancing growth away from exports and investment and problems in the shadow banking system."

Though the worst of the Euro zone crisis appears to have passed, recovery is still anemic.

"On Europe, as financial conditions have stabilised, growth prospects have picked up. There, also, equity valuations are cheap: is that an opportunity or a trap?" EFG asked.

Meanwhile, earnings season continues next week as Google, Yahoo, AT&T and Facebook announce results.

 

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