Wall Street Beat: Software a bright spot as tech results bring gloom

Though software sales provided a ray of light in otherwise mixed results this week, gloom settled over the tech sector Friday in the wake of bellwether IT quarterly earnings reports.

The broad Standard & Poor's 500 Index managed to close Friday at a record high of 1,692.09, but the tech-heavy Nasdaq dropped 23.66 points to 3,587.61, and the Dow Jones industrial average declined 4.65 points to 15,543.89. Of the five tech stocks on the Dow, only Intel traded up slightly, while Microsoft, IBM, Cisco Systems and Hewlett-Packard were down.

"Overall I'd say the earnings confirmed some common themes -- software is going to do better than hardware and services," said Forrester chief economist Andrew Bartels.

In Forrester's latest forecast for the global tech market, issued last week, Bartels lowered expectations for spending on IT goods and services to 2.3 percent growth measured in U.S. dollars, from the January estimate of 3.3 percent. Calculated in local currencies, the forecast looks better, at a 4.6 percent increase, but recession in Europe and slower growth in China is putting a damper on tech purchases by any measure.
IBM's earnings report on Wednesday was a good window into business tech spending and largely conformed to the big themes of the year, Bartels noted. IBM is considered a bellwether for the tech industry due to its geographic reach and giant portfolio of software, hardware and services. It is also the most heavily weighted stock on the Dow.

The company said second-quarter net income declined 17 percent from the year earlier to US$3.2 billion, while revenue dropped 3 percent to $24.9 billion. Though services and overall hardware sales declined during the second quarter, company officials stressed strength in software and big systems.

Software sales totaled $6.4 billion, an increase of 4 percent year over year. Middleware, including WebSphere, information management, Tivoli and Social Workforce Solutions (formerly Lotus), generated $4.3 billion in revenue, up 9 percent.

The company's Global Technology Services segment, however, suffered a 5 percent decline in revenue to $9.5 billion. Revenue for the Systems and Technology unit, which includes hardware products, was $3.8 billion, down 12 percent.

The big disappointment of the week was Microsoft, which Thursday said it took a whopping $900 million charge in the quarter to reflect unsold inventory of its Surface RT tablets. As the sagging PC market curbs sales of Windows, Microsoft is having trouble making headway in the booming markets for tablets and smartphones.

Overall revenue for the company was $19.9 billion, up 10 percent year over year. Net income was $4.97 billion, or $0.59 per share, compared with a net loss last year of $492 million, or a loss per share of $0.06.
In keeping with the global trend for a strong software market this year, Microsoft's application sales were strong. The Microsoft Business Division, which includes Office, had a revenue increase of 14 percent year over year, while sales for the Server & Tools unit increased 9 percent, boosted by demand for SQL Server and System Center.

In a departure from the good news for software, however, SAP reported some sales weakness. The business applications giant said Thursday that quarterly revenue increased 4 percent to €4 billion (US$5.3 billion) year over year, while profit rose 10 percent to €724 million. But while software and software-related service revenue rose 6 percent year on year to €3.3 billion overall, revenue from software alone dropped 7 percent to €982 million.

One problem for SAP is that while it is pushing its HANA in-memory database platform as a market leader for new types of analytics and data-processing, some customers may not be ready to embrace it yet, noted Forrester's Bartels.

On the components front, Intel reported a decline in earnings and revenue as the slumping PC market continued to hurt sales. Intel net earnings for the quarter plunged 29 percent from last year to US$2 billion, while revenue fell 5 percent to $12.8 billion.

The chip maker lowered its expectations for the year, forecasting sales to be flat, compared to its prior guidance for single-digit percentage growth.

Other tech giants reporting results this week included:

--Google, which said second-quarter net revenue, excluding payments to ad partners, was $11.1 billion, up year over year from $9.2 billion, while net income rose about 16 percent to $3.23 billion, or $9.56 a share. The results missed analyst expectations of $11.33 billion in revenue and $10.78 earnings per share. While the company is working mobile ads into its offerings, growth in its desktop advertising business is slowing.
--Yahoo, which reported a 46 percent increase in profit to $331 million. Revenue, however, was $1.14 billion, a 7 percent decline from last year. Though under CEO Marissa Mayer the company has tried to reinvent itself through acquisitions and has made efforts to control costs, it ultimately needs to boost sales to achieve real growth.

--Nokia, which despite reporting strong sales of its Lumia smartphones, suffered a 24 percent decline in revenue to €5.70 billion (US$7.48 billion). The company's net loss, however, was €278 million, smaller than the year-earlier loss of €1.53 billion.

Wall Street Beat: Software a bright spot as tech results bring gloom

Though software sales provided a ray of light in otherwise mixed results this week, gloom settled over the tech sector Friday in the wake of bellwether IT quarterly earnings reports.
The broad Standard & Poor’s 500 Index managed to close Friday at a record high of 1,692.09, but the tech-heavy Nasdaq dropped 23.66 points to 3,587.61, and the Dow Jones industrial average declined 4.65 points to 15,543.89. Of the five tech stocks on the Dow, only Intel traded up slightly, while Microsoft, IBM, Cisco Systems and Hewlett-Packard were down.
“Overall I’d say the earnings confirmed some common themes—software is going to do better than hardware and services,” said Forrester chief economist Andrew Bartels.
In Forrester’s latest forecast for the global tech market, issued last week, Bartels lowered expectations for spending on IT goods and services to 2.3 percent growth measured in U.S. dollars, from the January estimate of 3.3 percent. Calculated in local currencies, the forecast looks better, at a 4.6 percent increase, but recession in Europe and slower growth in China is putting a damper on tech purchases by any measure.
IBM’s earnings report on Wednesday was a good window into business tech spending and largely conformed to the big themes of the year, Bartels noted. IBM is considered a bellwether for the tech industry due to its geographic reach and giant portfolio of software, hardware and services. It is also the most heavily weighted stock on the Dow.
The company said second-quarter net income declined 17 percent from the year earlier to $3.2 billion, while revenue dropped 3 percent to $24.9 billion. Though services and overall hardware sales declined during the second quarter, company officials stressed strength in software and big systems.
Software sales totaled $6.4 billion, an increase of 4 percent year over year. Middleware, including WebSphere, information management, Tivoli and Social Workforce Solutions (formerly Lotus), generated $4.3 billion in revenue, up 9 percent.
The company’s Global Technology Services segment, however, suffered a 5 percent decline in revenue to $9.5 billion. Revenue for the Systems and Technology unit, which includes hardware products, was $3.8 billion, down 12 percent.
The big disappointment of the week was Microsoft, which Thursday said it took a whopping $900 million charge in the quarter to reflect unsold inventory of its Surface RT tablets. As the sagging PC market curbs sales of Windows, Microsoft is having trouble making headway in the booming markets for tablets and smartphones.
Overall revenue for the company was $19.9 billion, up 10 percent year over year. Net income was $4.97 billion, or $0.59 per share, compared with a net loss last year of $492 million, or a loss per share of $0.06.
In keeping with the global trend for a strong software market this year, Microsoft’s application sales were strong. The Microsoft Business Division, which includes Office, had a revenue increase of 14 percent year over year, while sales for the Server & Tools unit increased 9 percent, boosted by demand for SQL Server and System Center.
In a departure from the good news for software, however, SAP reported some sales weakness. The business applications giant said Thursday that quarterly revenue increased 4 percent to €4 billion (US$5.3 billion) year over year, while profit rose 10 percent to €724 million. But while software and software-related service revenue rose 6 percent year on year to €3.3 billion overall, revenue from software alone dropped 7 percent to €982 million.
One problem for SAP is that while it is pushing its HANA in-memory database platform as a market leader for new types of analytics and data-processing, some customers may not be ready to embrace it yet, noted Forrester’s Bartels.
On the components front, Intel reported a decline in earnings and revenue as the slumping PC market continued to hurt sales. Intel net earnings for the quarter plunged 29 percent from last year to $2 billion, while revenue fell 5 percent to $12.8 billion.
The chip maker lowered its expectations for the year, forecasting sales to be flat, compared to its prior guidance for single-digit percentage growth.
Other tech giants reporting results this week included:
Google, which said second-quarter net revenue, excluding payments to ad partners, was $11.1 billion, up year over year from $9.2 billion, while net income rose about 16 percent to $3.23 billion, or $9.56 a share. The results missed analyst expectations of $11.33 billion in revenue and $10.78 earnings per share. While the company is working mobile ads into its offerings, growth in its desktop advertising business is slowing.Yahoo, which reported a 46 percent increase in profit to $331 million. Revenue, however, was $1.14 billion, a 7 percent decline from last year. Though under CEO Marissa Mayer the company has tried to reinvent itself through acquisitions and has made efforts to control costs, it ultimately needs to boost sales to achieve real growth.Nokia, which despite reporting strong sales of its Lumia smartphones, suffered a 24 percent decline in revenue to €5.70 billion (US$7.48 billion). The company’s net loss, however, was €278 million, smaller than the year-earlier loss of €1.53 billion. 

Google Results Show Struggle With Mobile

Despite a range of efforts by Google, the riddle remains unsolved, its financial report Thursday revealed.

Google reported second-quarter results that missed analysts’ expectations for revenue and profit. They showed that its desktop search business continues to slow and ad prices continue to fall as it struggles to make as much money on mobile devices.

 The report was particularly incongruous given how Google’s share price climbed 27 percent this year.
It is a vexing problem for every company that has generated revenue through advertising, be it a century-old magazine with a mobile app or a new Web site aggregating the news. Mobile ads do not command the premium that Web advertising does (and Web ads do not make as much as print ads)

Colin W. Gillis, a technology analyst at BGC Partners, wrote a haiku before the earnings announcement: “The results should be/ pretty as a picture to/ justify the stock.”

 
They were not. Shares, which fell 1 percent ahead of the report on Thursday, fell another 4 percent in after-hours trading.
“One of the reasons why people like Google is you can look forward and see what they’re doing with Glass and laying fiber and driverless cars and Chrome, chasing after new revenue streams,” Mr. Gillis said. “But those are still pretty far away. Google’s core business is all about advertising and clicks, and the core business is absolutely maturing.”

 
Mobile ads, he added, are inexpensive yet “overpriced because the conversion rates are so low.”
“It’s still too hard to transact on a phone,” Mr. Gillis said.
Google had seemed to have finally found a solution to the riddle, by making the biggest-ever change to its AdWords advertising product. The new program, called enhanced campaigns, which was introduced in February and will be mandatory for all advertisers on Monday, gives advertisers less choice about advertising on mobile devices by automatically including desktop, tablet and cellphone ads for all campaigns. Advertisers can choose not to buy cellphone ads but are required to buy tablet ads.

 
Google says that this simplifies the process for advertisers and makes it easier to reach customers who use devices indiscriminately. More important than the type of device, the company says, is whether someone is at a desk or on the sofa, in the mood to shop or eat.

 
But it also means that the price of mobile ads, which has been about half that of desktop ads, will most likely increase. Google’s ads are sold at auction, and one reason mobile prices have been low is that there has been less demand. Enhanced campaigns should change that.

 
For example, the cost per ad click, known as C.P.C., for clients of the Search Agency, a search ad firm, rose 22 percent in the quarter, largely because of Google’s ad-buying changes. It was the first time that tablet ads cost more than those on desktops, and advertisers increased spending on smartphones 25 percent, the most of any device category.

 
“There used to be a discount you would get for going after traffic on tablets instead of desktops,” said Keith Wilson, vice president for agency products at the Search Agency. “Now that is disappearing. That is what is going to drive up C.P.C.’s in the mobile space. This has been a catalyst for prioritizing mobile.”

 
But it was too early for the results of the new ad program to show up in Google’s financial report, company executives said Thursday. The price that advertisers pay when Google users click on their ads decreased 6 percent from last year and 2 percent from the previous quarter, declining for the seventh quarter in a row and at a steeper annual rate than in the previous quarter.

 
Mobile ad pricing is “one of the many factors at work” affecting click prices, said Nikesh Arora, Google’s chief business officer. Google is in the early stages of enhanced campaigns and it will most likely take a year for the results to become apparent, he said. He added that another important metric at Google, the number of clicks on ads, is up 23 percent over last year, partly because of increased mobile use.

 
Larry Page, Google’s chief executive, said that six million advertisers had already switched to enhanced campaigns. American Apparel, according to Google, doubled its mobile conversion rate with the new ads, and M&Ms, the Mars candy brand, increased it by 41 percent.

 
In addition to enhanced campaigns, Google is doing other things to improve its mobile offerings and its profits from mobile ads. It has been encouraging Web sites to improve their mobile versions, and last month it said Web sites without easy-to-use mobile versions could fall in search rankings. And it introduced its product listing ads, for shopping, to mobile devices.

 
Google reported second-quarter revenue of $14.11 billion, up 19 percent from $11.8 billion a year ago. Net revenue, which excludes payments to ad partners, was $11.1 billion, up from $9.2 billion. Net income rose to $3.23 billion, or $9.54 a share, from $2.79 billion, or $8.42 a share. Excluding the cost of stock options, Google’s second-quarter profit was $9.56 a share.

 
Analysts had expected net revenue of $11.33 billion and earnings, excluding the cost of stock options, of $10.78 a share.

 
Adding to the disappointing results was a $342 million operating loss at Motorola Mobility, which is expected to introduce a new phone, the Moto X, this summer.

 
As shareholders and analysts wait for Google to find the next product to reignite revenue growth as the core search business slows, Mr. Page acknowledged the challenges of building new products that reach people on the same scale as search.

 
“It’s pretty easy to come up with ideas,” he said. “It’s pretty hard to make them real and get them to billions of people. And that’s to me what’s so exciting.” 

BlackBerry results fail to prove turnaround, stock slumps 17%

The Z10 and Q10 are the first devices to launch on BlackBerry 10. The company's future hangs on the success of the long-delayed platform.

BlackBerry shares slumped 17% in premarket trading Friday after the company's fiscal first-quarter results sorely missed Wall Street estimates.

It's been a lot of hurry-up-and-wait for BlackBerry watchers. The long-delayed BlackBerry 10 operating system finally launched in January, during the company's fiscal fourth quarter. But the first BlackBerry 10 device, the touchscreen Z10, went on sale in only a few locations just a few weeks before the quarter ended -- so that reporting period was essentially a wash.

The first quarter was BlackBerry's first chance to prove the company is turning around. Unfortunately for BlackBerry, the quarter was a painful disappointment.

BlackBerry (BBRY) lost 13 cents per share on sales of $3.1 billion. Analysts polled by Thomson Reuters had expected a profit of 6 cents a share on revenue of $3.4 billion.

Considering that BlackBerry 10 is meant to be the center of the turnaround, the company didn't mention the platform much in its news release. BlackBerry said that overall smartphone shipments rose 13% over the quarter to 6.8 million -- but didn't say how many of those were BlackBerry 10 devices.

Analysts will be looking for more information about Z10 phone sales during a conference call later Friday. The Z10 launched in more areas, including the United States, in late March.

So far, BlackBerry mainly has only its Z10 sales to prove its new platform is a winner. The second BlackBerry 10 device -- the Q10, which features a BlackBerry-classic QWERTY keyboard -- launched in only a few markets during the quarter.

Devices such as the Z10 and Q10 will have to battle popular phones from Apple (AAPL, Fortune 500) and Samsung. Given the "highly competitive" smartphone market, BlackBerry said it expects to post another loss for the current quarter.

BlackBerry's future depends on the success of the BlackBerry 10 OS. The company's shares are up an incredible 78% since last November, when the company announced the platform was finally, truly coming in January.

But that runup is partly because many investors are still betting against BlackBerry. As of June 14, nearly 35% of shares were held by short-sellers who think that BlackBerry's stock will fall. That's an extremely large percentage, and it has contributed to BlackBerry's wild swings as "shorts" are sometimes forced to buy up shares in order to cover their positions.

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Wall Street Beat: Software vendors report mixed results amid market tumult

Against a backdrop of market tumult, enterprise software companies this week reported mixed quarterly results.

Though Red Hat reported a robust quarter, Oracle revenue flatlined and Tibco’s sales and profit declined year over year.

Meanwhile, shares of tech companies plunged Thursday along with the rest of the market, as investors took in the news that the U.S. Federal Reserve may taper off some initiatives to support markets as it sees the economy improve. For example, Fed Chairman Ben Bernanke for the first time suggested a timeline for winding down purchases of mortgage bonds and treasuries, possibly next year.

Though the Fed still plans to keep interest rates low, stocks plunged Thursday. The broad Standard and Poor’s 500 index declined 2.5 percent, its worst drop since November 2011. The Dow Jones Industrial Average ended down 353.87 points, or 2.3 percent, with all of its 30 components in negative territory, including its five tech stocks: Hewlett-Packard, Microsoft, Cisco, IBM and Intel.

Stocks again declined in Friday morning trading, though not sharply. The only tech stock in the Dow that was trading higher was Cisco, up by $0.04 to $24.22. The Nasdaq Computer index, which tracks more than 300 tech-related securities, was down by 1.29 percent to 1603.27.

Though software has been a bright spot for tech, vendors are heading into what is expected to be a bumpy ride for the economy and the market.

“While we are incrementally more optimistic about the macro demand for software IT, we fully recognize that the world economy is still fragile and it is improving haltingly,” said Canaccord Genuity analyst Richard Davis in a research note about Oracle. “This means that summer 2013 will likely be one full of a confusing mishmash of data points.”

Though Oracle Thursday reported a 10 percent year over year increase in profit, to $3.8 billion, revenue for the three months ending in May was flat at $10.9 billion. Oracle tried to highlight the good news, saying that SaaS (software as a service) revenue growth was up 50 percent. However, SaaS is only a small part of new software licenses and cloud software subscriptions, which rose a tepid 1 percent to $4 billion. New software licenses are key for growth for a software company, so the weak increase has investors worried. Oracle shares declined by $2.71 in Friday morning trading, to $30.50.

Oracle maintenance fees, meanwhile increased 6 percent to $4.4 billion, providing a cushion for the company, but hardware revenue continued to decline, dropping 9 percent to $1.43 billion, as Oracle restructures its offerings to focus on high-end systems.

Oracle executives noted that economic concerns appeared to put a damper on enterprise spending.

“When we saw weakness, we saw weakness in all of our software lines,” CEO Larry Ellison said in a conference call to discuss results. “It was clearly an economic issue, not a product competitiveness issue.”

Still, some industry insiders remain optimistic even in the face of a tough economic environment.

“We see a gold rush coming,” said Tibco CEO Vivek Ranadivé in an interview after the company announced quarterly results Thursday. Big data analytics is the “secret sauce for the most successful retailers,” Ranadivé said. Vendors that can show they have superior products that allow real time analysis of data integrated from a variety of sources—including mobile devices—will be able to take advantage of enterprises’ rush to implement big-data applications, he said.

Nevertheless, Tibco reported a tough quarter. Quarterly revenue for the period ending June 2 was $245.8 million, down from $247.4 million a year earlier, while net income was $8.7 million, down from $26.5 million.

Tibco, which offers a portfolio of middleware and analytics software geared for the integration and real time analysis of massive amounts of data, is not being hurt by economic concerns, Ranadivé insisted, but has had sales execution issues, which it has taken pains to resolve. Top sales executives have been replaced and the sales process has been reviewed and overhauled “from A to Z,” Ranadivé said.

“In my many conversations with customers, I have not seen those customers unwilling to spend money,” Ranadivé said in a conference call with analysts to discuss results. “However, what is the case today is that software providers of every stripe need to demonstrate value to sell their products. They need to showcase their differentiation and more importantly, make precisely clear how they will move the needle for their clients in terms of revenue or market share gains, specific and lasting cost reductions or improvements in managing risks.”

Tibco has a strong pipeline of deals in the works, Ranadive added, and expects to see results from its overhaul of its sales team over the next few quarters.

Meanwhile, open-source software vendor Red Hat, reporting quarterly results Wednesday, showed strong gains in both sales and profit. Total revenue for the quarter was $363 million, a year over year increase of 15 percent, while net income rose to $40 million from $37 million.

“We delivered mid-teens revenue growth driven by customer demand for innovative open source technologies based on a high-value subscription model,” said CEO Jim Whitehurst in a press release. “We continued to execute against our strategy of significantly expanding our addressable market in the new cloud-centric data center.”

Tech companies whose quarter ends in June, meanwhile, will report results in about a month. Those results may reflect some of the economic uncertainty that has arisen this month.

 

Microsoft's 'Bing Boards' allows users to curate search results

Microsoft’s push to make its Bing search engine more social will take it in a new direction—actually letting a select group of users curate results.

Microsoft’s “experiment,” known as Bing Boards, will allow a small group of food and lifestyle bloggers, experts, and social influencers to cultivate their own selection of search results on a given topic. The Board will be a visual collection of images, videos and links that tell the story from the blogger’s point of view, Microsoft said.

These results won’t replace the search result that Bing normally returns, but will sit alongside them within the middle column of Bing’s search results, Chen Fang, program manager of Bing Experiences, said in a blog post.

When one searches Bing, the results show up in the middle of the page on a 4:3 screen, or on the left hand of a widescreen monitor. The Bing Board appears as a larger image to the right of the main search results. When clicked on, the Board opens up to a larger image, with additional links and images inside.

Microsoft

“Most people spend at least some time every day on sites dedicated to a particular area in which they have a special interest,” Fang wrote. “It could be a hobby, a political or social issue, an area of pop culture: the topics are as varied as the people who are interested in them. Now, in the same way that we’ve brought knowledge from friends and recognized experts into search, we’re providing a new way for passionate people to create highly specialized content, specifically for search.”

Microsoft said that it will use a team of editors to bring on new contributors with content that  “shares an interesting point of view and is visually unique,” a spokesman said an email, factoring in metrics such as traffic and online influence as well. In an example search, searching for “photo booth backdrop” generated a Bing Board by Chelsea Costa of Lovely Indeed, a DIY blog. All of the links within the Bing Board went to the Lovely Indeed site.

“Bing Boards are another way for creative online influencers to express their words, images and point of view on their passions and reach readers who are interested in the content they are producing,” Microsoft representatives said in response to a question about whether bloggers would be responsible for curating third-party content.

Microsoft said that the Bing Boards are but one of hundreds of minor tweaks Microsoft engineers apply to the site on a regular basis. “Most are nearly invisible, ranging from small tweaks to the search algorithm, to changes in our ad selection, to optimizations in the color, size, and placement of features,” Fang wrote.

The Bing Board appears to the right of search results.

About 17.4 percent of all U.S. search results are returned via Bing, according to May data collected by comScore. That puts Microsoft a distant second to Google, which controls 66.7 percent of the U.S. search market.

In 2010, Microsoft and Facebook joined forces to create an instant personalization feature for search results, with some results tagged as “Liked by your Facebook Friends.” The partnership grew closer over time: Microsoft added a “social” column to allow users to ask questions of Twitter and Facebook friends, and then integrated results if those friends had commented, liked, or referred content from a variety of social networks, including LinkedIn and even Google+. Bing even allowed users to search Facebook Photos, if logged in, via a feature that predated Facebook’s own Graph Search.

In March of this year, Bing added Facebook and Twitter data to people searches. And in May, Bing allowed users to comment and Like search results, directly on the Bing site.