Tech earnings were in full swing last week with Apple (AAPL), Yahoo (YHOO), Microsoft (MSFT) and Amazon (AMZN) reporting numbers.
Earnings Highlights
Apple: Apple posted strong fourth-quarter results, beating the Zacks Consensus Estimate. The company saw strength in iPhones and Macs with iPad and iPod declining as expected. The reporting structure is being changed, so competitors have less information about its new products (such as Watch). The company also provided very strong guidance, as its most successful product lines (especially the large-screen iPhones) are ready for the holiday shopping season.
Yahoo: Yahoo also topped our expectations as the core business looked up, supported by good cost control. The company now appears to have a refocused display business, strengthening search business and is also reporting growing success on the mobile platform.
The balance sheet also looks good with all the Alibaba (BABA) cash on it. Although a chunk will be paid as taxes, management has committed to returning half the rest. They started making good on that promise in the last quarter, buying back a large number of shares.
Microsoft: Microsoft delivered on its cloud-first mobile-first strategy, beating the Zacks Consensus Estimate. Cloud was clearly a major driver for the business, growing 128% from last year. Management stated that the business is on track to do $4.4 billion in revenue this year. There will be a near term negative impact of transitioning to a cloud model because at least some of it will be at the expense of traditional Office licenses. But this is a near-term phenomenon only and growth in Azure, Office 365 and Dynamic CRM is extremely important because they will position this company for the future.
Microsoft also took most of the Nokia-related restructuring charges in the last quarter. The lower headcount and product rationalization in this business is having a near-term impact on results. But the benefits of focusing on fast-growing segments that play to its strengths are positive for long-term growth.
Amazon: Amazon’s story remains much the same, with results going bad to worse as investments continue regardless. The company has also not abandoned its policy of undercutting everyone on price, which doesn’t help either revenue or profits. Amazon’s problems stem from its determination to maintain share in many very fast-growing markets each of which has a growing number of new players.
The breadth of markets assumes greater significance when sales are online or products are digital because there are related technology costs as well. To acquire the infrastructure, expertise and inventory/content to do the business on such a big scale would be a challenge for anyone. Amazon could have helped itself by going slow on the discounts. Instead it’s become something of a trend-setter. Failing that, it’s time management came out and started talking about its future plans.
|
Company |
Last Week |
Last 6 Months |
|
AAPL |
+7.71% |
+28.76% |
|
FB |
+6.20% |
+39.78% |
|
YHOO |
+13.13% |
+26.16% |
|
GOOG |
+5.59% |
+4.57% |
|
GOOGL |
+4.96% |
+4.92% |
|
MSFT |
+5.73% |
+15.58% |
|
INTC |
+5.74% |
+26.35% |
|
CSCO |
+2.27% |
+3.39% |
GOOG = Class C shares (new, non-voting)
GOOGL = Class A shares (old, 1 vote per share)
Other stories you might have missed–
Corporate
Apple’s iCloud Could Be Under Attack: Apple has issued a security warning users of its iCould storage service that their information could be the subject of intermittent organized network attacks. The company was careful not to mention and country and also didn’t provide much detail, but cybersecurity blogs and other experts are pointing to China where the Chinese government has been accused of supporting and joining such hacking exercises that the government has repeatedly denied. Notably, Apple’s CEO Tim Cook received royal treatment in the country last week when he also announced his decision to open 25 more Chinese stores , taking the total number of stores in the country to 40.
Zuckerberg Acquires New Role in China: Facebook’s (FB) Zuckerberg has been appointed to the board of China’s leading business school – Tsinghua University School of Economics and Management. Facebook as well as many other sites have been blocked in China for long now but the company’s plans to enter the market remain in place. Facebook has leased office space in Beijing’s prime business district, and is hiring Chinese university students to positions in the U.S. that could be a workforce in the making. Additionally, Zuckerberg’s visit includes meetings with advertising partners and China experts.
KLA Announces Leveraged Recapitalization, Shares Jump
Nadella Gets Hefty Package in Debut Year: According to a recent regulatory filing, Microsoft’s Satya Nadella received $84.3 million as CEO compensation in his first year at the company, making him one of the highest-paid CEOs in the industry. But most of the compensation takes the form of one-time stock awards that he wouldn’t be able to liquidate for five years. So the amount will come down significantly in 2015 (base salary of $1.2 million, cash bonus of up to 3x the base salary and shares worth $1.2 million, totaling $18 million for the year).
Microsoft Rebranding Nokia Lumia: Microsoft spent $7.2 billion to buy Nokia’s handset business and after getting rid of most of the workforce and eliminating other costs, the company is now set to drop the Nokia brand name. That’s true at least for the Lumia devices that have done better than all other Nokia products. The agreement allows Microsoft to use the Nokia brand for 10 years and it looks like the company will use it to distinguish between higher end devices offering better experience (under the Microsoft brand) and lower end devices offering entry-level experience (under the Nokia brand).
Regulatory
Facebook Sues Law Firms Over Ownership: Facebook and its CEO Zuckerberg have sued DLA Piper and other law firms representing Paul Ceglia, who has claimed half ownership of Facebook based on a 2003 agreement signed with Zuckerberg. The case has already been set aside by the court in April, but the CEO contends that the law firms “knew or should have known” that the lawsuit was fraudulent and based on an implausible story and obviously-forged documents. DLA Piper has said that the allegation is baseless and was an intimidation tactic designed to discourage lawsuits against Facebook. Ceglia is awaiting trial for fraud and destruction of evidence and has pleaded not guilty.
GTAT/Apple Settle, Maintain Secrecy: GTAT and Apple appeared to have come to a truce even as the bankruptcy court allowed the startup to wind down its sapphire manufacturing operations and pay incentives to some employees. The two companies subsequently filed an agreement, according to which GTAT got to stop sapphire production, retain its intellectual property and sell its manufacturing equipment and technology to third parties.
Apple would be able to recover the $439 million it invested in the company without interest despite the loss of its exclusivity status and said that the two companies could do business in the future if the technology reached marketable standards. GTAT, Apple and other creditors continue to ask for confidentiality with respect to the details of the original agreement.
New Technology/Products
Facebook Chat App Called Rooms: Facebook officially launched a new and separate app called Rooms that can be used to anonymously create chat rooms where people of common interest or belonging to the same age groups can connect. The development of the app was first reported a few weeks ago by the New York Times.
Netflix Collaborates to Announce “Between”: Netflix (NFLX) has joined hands with Canadian VOD service Shomi and a Canadian TV station called City to create an original drama series called “Between.” The first season, comprising 6 1-hour episodes, will premier on City in Canada and Netflix in other parts of the world.
Candy Crush Sequel Launches On Facebook: King Digital (KING) has announced that Candy Crush Soda Saga, the next iteration of its wildly popular game Candy Crush Saga is now available worldwide on Facebook. The game includes new graphics and features and is designed to be played alongside the original. A mobile version is expected in the following weeks.
M&A and Collaborations
EMC/Cisco Parting Ways: The joint venture (called VCE) between EMC, its 80%-owned subsidiary VMware and Cisco is breaking down. Last week, Cisco sold a large chunk of its holdings in VCE to EMC, retaining just 10%. Earlier, it lost a bidding process to acquire Nicira whose founder created the disruptive technology called software defined networking (SDN). This put VMware, the buyer of the startup in a strong position with respect to SDN technology, driving Cisco into the arms of rival NetApp.
VCE systems had been popular and similar systems from the Cisco/NetApp combine are currently available. Cisco’s own SDN offering also holds promise. Meanwhile, the $1 billion+ VMware paid for Nicira is also paying dividends according to the company.
Intel Capital Invests in Chinese Firms: Intel has put $28 million into companies that could strengthen its position in the emerging mobile and IoT markets in China. The companies it invested in include the creator of a forked Android OS for low-cost devices called LeWa; a provider of healthcare solutions and management for the elderly, the fashionable or those inclined to sports called Appscomm; a creator of iris recognition technology called EyeSmart; cloud-based communications solutions provider Gotye and Fibocom, a maker of communications and geolocation modules facilitating machine-to-machine apps connecting smart grids or healthcare or even automotive.
Google Buys Firebase: Google has bought database provider Firebase for an undisclosed sum. The company’s technology enables developers to store and synchronize data in real time. This has become a complex process because data is now required on mobile devices as well as the cloud. The acquisition is will therefore help (and also possibly speed up) the creation of web and mobile apps by eliminating some processes in their development.
Google Interested in Magic Leap: Google has spent $542 million to acquire a stake in Magic Leap, which is developing a mysterious new product, likely to be a lightweight wearable that could also be driven by another mobile device according to media reports. But it’s not alone in this: Qualcomm and film production company Legendary Entertainment are also among the many investors in this startup, which is currently valued at $2 billion.
Google Partners with Oxford: Google’s investment in artificial intelligence (AI) appears to be following a definite path. Last week it acquired a couple of companies called Dark Blue Labs (developing natural language processes for machine learning) and Vision Factory (developing object and text recognition systems) started by the Oxford University. In what was obviously an acqui-hire, Google managed to bring on board experienced researchers in the fields of natural language and visual processing. Google’s partnership with the university also includes an agreement to put money into its computer science and engineering departments. This builds on a $400 million investment in AI company DeepMind earlier this year.
Some Numbers
Some Earnings Reports: Here is a list of some other technology companies that reported last week. While VMware, Yelp, CA and Red Hat, beat the Zacks Consensus Estimate, Pandorareported inline while Juniper and International Business Machines missed.
Major Companies Reporting This Week: Some of the big technology companies reporting this week include Facebook, Yahoo, Twitter, Electronic Arts, Groupon, Western Digital, LinkedIn, Corning, Ametek, Expedia.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment