Tech Giants Give Mixed Signals

Three tech giants – IBM, Microsoft and Google — reported earnings today. The lessons: 1) It’s a good time to sell technology overseas and 2) We’ve yet to figure out this whole Internet thing.

Like a good martini, news for tech stocks was mixed

IBM reported that revenue jumped 13% from the year-ago quarter to $26.8 billion and that net income rose 22% from the same period to $2.8 billion. Both numbers beat expectations and the stock was up about 1.5% after hours. Most of the growth came from IBM’s consulting and software sales – and most of it came overseas. Revenues in the Americas grew just 8%.

Microsoft reported revenue of $15.8 billion, an 18% increase from one year ago, and net income of $4.3 billion, up 42% from a year-ago quarter that included one-time charges. The company narrowly missed analysts’ income projections and issued lower-than-expected earnings guidance, sending share prices down 6% in after-hours trading.

Dissecting the numbers, Microsoft was helped by strong demand for PCs overseas. Revenue for the division responsible for the Windows operating system grew 15% from the year-ago quarter, a nice rebound from last quarter, when slow operating-system sales triggered questions about the success of Vista, the most recent version of Windows. Given all the bashing Vista gets, it’s nice to see that Microsoft increased the amount it spent on sales and marketing for the operating system by 22% from last year.

One area that stood out from Microsoft’s earnings report is the online services business, which is a financial black hole. The group responsible for online advertising and other Internet-based services boosted its revenue 24% to $838 million from the year-ago quarter, but still managed to lose $488 million, more than twice as much as last year.

Which takes us to Google. The search giant’s income, while up 35% from the year-ago quarter was significantly lower than analysts expected – this, despite revenue of $5.37 billion, up 39% from last year. The most alarming trend is that the rate of growth for paid clicks, Google’s chief revenue source, is slowing year-to-year. Paid clicks were down on a quarter-to-quarter basis.

Most businesses would kill to have results like Google’s. But in this weird Web 2.0 world we live in, 35% income growth sent the company’s shares were down 8% after hours.

We realize we’re just adding our voice to the chorus here, but given Microsoft’s struggles turn a profit from search and Google’s announcing results that make it look like a real company and not the U.S. Mint, maybe it’s time we stopped thinking about search as Internet equivalent of an ATM.

-Ben Worthen

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