Earnings season for the technology sector has kicked off. If last week was any indication, the sector is going to have one of its worst seasons ever.
What’s Irking Big Tech this Earnings Season?
Last week saw Yahoo (YHOO), Intel (INTC), Microsoft (MSFT) and Google (GOOG) report earnings. While none of the companies’ core businesses met expectations, Yahoo’s Asian assets saved it. The ongoing move to mobile platforms has impacted these companies in different ways.
Intel’s core technology is selling into a shrinking PC market and the company is scrambling to get new chips and hardware partners that could strengthen its position in mobile. Intel has an uphill battle since ARM (ARMH) designs from Qualcomm (QCOM) and others are tried and tested. Moreover, they practically own the market with a more than 90% share.
However, Intel has had a product in the works for some time and the company continues the fastest move to superior process technology and sufficient capacity. Under the circumstances, its capex reduction appears more sensible than significant. Intel’s moves are those of a company with a plan, but only time (probably Q4) will tell how successful that plan is.
Microsoft, on the other hand, looks in bad shape. This is not because it hasn’t prepared for the transition to mobile, but more because it is repeatedly failing to feel the pulse of the public so it can sell some really great products. The company is now under pressure from certain shareholders to change its strategy and move away from devices to the cloud.
Microsoft’s PC business is disappearing rapidly, its position in mobile is practically non-existent and its popular gaming platform is seeing challenges. The only areas that continue to strengthen are its cloud and business solutions. If the company doesn’t get its act together, it could see trouble here too in the form of Amazon (AMZN), Oracle (ORCL) and Salesforce (CRM), among others.
Google has problems of its own but the company also has vision. It started out as the leading search engine on the desktop platform and went on to become the leading search engine in the mobile segment as well. It’s true that pricing issues are bleeding the company at present, but the cure is also on the way.
Google’s “Enhanced Campaigns” will bring back spenders and Google will continue to diversify. There’s a concern that its legal problems will accelerate but it has many irons in the fire so the impact on shareholders could be less.
For Yahoo and Facebook (FB), it’s all about engagement. These companies are striving to get users to choose their web properties and stay on them for as long as possible.
Yahoo continues to revamp, redesign and re-invest and the company has reported that its new designs and technology are increasing engagement. It has promised to be a “mobile first” company but its efforts are yet to move the needle in terms of revenue and profits. Facebook has already reported success in the first quarter (users up 30% from last year) and we will know more after its earnings report his week.
A transition can be a pain for well-established players, but it’s usually also an opportunity to gain share and increase profits. While it’s hard to say yet how the market will shape up, there’s one thing they’re serving us boat loads of: hope.
What’s On TV?
If Intel, Sony (SNE), Google, Microsoft and Apple have their way, it could be anything you want and any time you want it, with ads or ad-free. What’s more, traditional distributors like Comcast (CMCSA) are likely to follow suit (if these companies force their hands that is).
In the meantime, they are happy to apply brute-force tactics on media companies, many of whom are undecided in any case. The long-term trend and financial muscle of these technology companies are probably the reason that Comcast tried to nab Hulu and Cox Communications is testing the distribution of 100-odd channels through broadband in Orange County.
Last week, there was a news leak that Intel’s new TV service will be called OnCue and will be operational by year-end. Media reports indicate that Sony’s service could be available sooner. Google is already testing its service in Kansas City and Apple is working on improvements to its STB. Hello TV Everywhere.
Acquisitions: All In a Day's Work
Apple, Facebook and Yahoo picked up a few more startups last week.
Apple’s focus was on improving its mapping software, although a possible acquisition of PrimeSense (the company behind Microsoft’s Kinect is also on the cards). The mapping companies Locationary and HopStop combine user-generated information with internal algorithms to provide information regarding businesses (Locationary) and traffic (HopStop), much like Waze that Google paid more than a billion dollars for.
Facebook, on the other hand, picked up software company Monoidics that removes bugs from other software or aps. Facebook’s focus on acquiring and retaining customers has led it to this acquisition, which is likely to improve the quality of its products and also bring some good engineers aboard.
Yahoo’s acquisitions were targeted at improving its advertising products. Admovate is expected to improve the targeting of ads, especially on mobile devices, while Ztelic is expected to help social data analysis.
It’s also being rumored that Cisco (CSCO) could acquire Plexxi, which promises greater efficiency and lower cost in enterprise networks, with the potential to make a big dent in Cisco’s switching revenues.
Last Week’s Performance
6 month performance
The week ahead –
This is the biggest earnings week for the technology sector, with Apple, Facebook, Amazon, Netflix (NFLX), Electronic Arts (EA), EMC Corp (EMC), Akamai (AKAM), Symantec (SYMC), Juniper (JNPR) and KLA-Tencor (KLAC) reporting. It’s too much to preview in this roundup, but do read more about it in our “Earnings Preview” section.
Google will be hosting an Android and Chrome Event on Wednesday. Possible products and product upgrades include a Nexus 7 Android tablet, a refreshed Nexus Q media streaming device and Chrome devices of smaller or larger form factors.
Intel’s technology has been at work in South Korea’s 3D movies market and the first movie is to be released on Wednesday. Intel says the 3D movie opportunity in the region is going to be big.Read the Full Research Report on SNE
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