Bloomberg News

Microsoft Leads Stalwarts in Topping Estimates; Google Dips

January 24, 2012

(Updates shares in sixth paragraph.)

Jan. 20 (Bloomberg) -- Microsoft Corp., Intel Corp. and International Business Machines Corp. issued results yesterday that topped analysts’ estimates, showing that buoyant business demand is girding the largest technology companies against Europe’s debt crisis and a consumer-spending slump.

Microsoft’s Office software and other business programs helped profit exceed projections last quarter, even as sales of Windows suffered from sluggish personal-computer orders. Intel and IBM, meanwhile, both delivered rosier sales forecasts than some analysts had predicted.

Reports from the trio of companies, with a combined market value of almost $600 billion and an average lifespan of six decades, allayed investors’ concerns that a slowdown in Europe, anemic consumer demand and last year’s floods in Thailand would hobble the information-technology industry. Corporate customers haven’t let up on orders, lifting sales at all three companies, while Intel is getting an extra boost from emerging markets.

“Old dogs can still hunt,” said Pat Becker Jr., a fund manager at Becker Capital Management in Portland, Oregon. His firm has invested in all three companies.

Microsoft, the world’s largest software maker, climbed 3.2 percent to $29.03 at 9:46 a.m. New York time after the numbers were released yesterday after the markets closed. Intel rose 0.9 percent to $25.87, while IBM advanced 3.4 percent to $186.73.

‘Oracle-Specific Event’

The results were a relief for many investors after Oracle Corp. reported weaker-than-anticipated earnings last month, fueling speculation that businesses were holding off on technology spending, said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland.

“The results of these three companies suggest that was an Oracle-specific event,” Barnicle said.

The positive outlook also contrasted with the earnings of Google Inc., which also delivered its report yesterday. The Mountain View, California-based company missed analysts’ sales and profit estimates, dragged down by the European crisis and a push into mobile technology, which yields lower ad revenue. Google shares had their biggest intrady decline since May 2010.

IBM’s Forecast

Sales at Microsoft’s business division, largely made up of Office products such as Word and Excel, rose 2.8 percent to $6.28 billion. Analysts had estimated $6.1 billion on average, according to data compiled by Bloomberg. The company’s Xbox video-game business also topped projections, generating $4.24 billion in revenue.

Microsoft, based in Redmond, Washington, posted net income of $6.62 billion, or 78 cents a share. That beat the 76-cent average estimate.

IBM, the biggest provider of computer services, reported fourth-quarter earnings of $4.71 a share, excluding some items. Analysts had predicted $4.62. The Armonk, New York-based company’s forecast for 2012 earnings also exceeded predictions.

Intel, which dominates the market for computer chips, expects sales of $12.8 billion, indicating that production is bouncing back after the Thai flooding. The disaster wiped out a quarter of the computer industry’s disk-drive production, delaying shipments of PCs. Research firms Gartner Inc. and IDC had lowered their PC sales forecasts as a result of the floods.

Corporate Buyers

The supply disruptions hurt revenue at Santa Clara, California-based Intel last quarter. IBM’s sales also were lower than expected in the period.

Trip Chowdhry, an analyst with Redwood City, California- based Global Equities Research LLC, says technology companies still face long-term challenges. Higher gasoline costs, for one, will both hurt consumer spending and increase the price of raw materials, he said.

Corporate buyers are showing more resiliency than consumers, who are reeling from a still-shaky job market. Businesses are the driving force behind Microsoft, IBM and Intel’s results, said Michael Holland, chairman of New York- based Holland & Co., which oversees $4 billion in assets.

“The consumer continues to have unemployment problems and confidence problems, but businesses are doing everything they can to grind out profits,” Holland said.

--With assistance from Peter Burrows in San Francisco and Beth Jinks in New York. Editors: Nick Turner, Stephen West

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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