Hopes that the start of the earnings season would bring a fresh wind to the tech sector evaporated quickly this week. The Nasdaq Composite Index, under pressure from the first quarter's dismal close, modest corporate buying plans, and concerns about oil prices and inflation, was knocked down yet again in the middle of the first wave of reports.
Investors don't necessarily like surprises, and on Thursday, ahead of an unexpected earnings announcement from IBM and after several companies, including Apple, reported, the Nasdaq index dropped 27.66 points to close at 1946.71, a low for the year and its worst finish since October.
IBM, which had said it would report Monday, instead announced on Thursday that March-quarter earnings were $0.85 per share, below the $0.90 forecast of analysts polled by Thomson First Call. Profit was $1.4 billion, on revenue of $22.9 billion, both up 3 per cent from last year's first quarter, but analysts were expecting revenue of $23.6 billion. The main reason that IBM missed expectations was that it failed to close hoped-for deals toward the end of the period, especially in countries with "soft economic conditions," CEO Sam Palmisano said in a statement.
Before the announcement, which came after the market close, IBM shares (IBM) dropped $0.93 to $83.64. It might take awhile for the significance of IBM's report to sink in, but the failure of the world's largest IT company to close deals in the face of uncertain market conditions does not bode well.
On its part, Sun Microsystems once again disappointed investors, reporting a loss of $61 million or $0.02 per share for the quarter on Thursday. Analysts had forecast a break-even quarter. Though the loss was narrower than its year-earlier loss of $0.08 per share, revenue, at $2.625 billion, edged down from last year's $2.651 billion.
This is especially worrying given that users and investors had been hoping that Sun's renewed efforts -- including new Linux offerings and cheaper servers -- to woo its traditional users in financial institutions would bear fruit in the form of increased sales. Sun had missed analysts' revenue target last quarter, as well. In advance of the announcement, Sun (SUNW) shares dropped by $0.06 to close at $3.96.
Meanwhile, Apple Computer, which has become a bellwether stock for online music, couldn't get a break from traders despite a Wednesday earnings report that announced record profit and revenue. Due to strong Macintosh computer and iPod digital media player sales, Apple posted a profit of $290 million, or $0.34 per share for its fiscal 2005 second quarter, compared to earnings of $46 million, or $0.06 per share, one year earlier. But some analysts said they thought Apple's projection of $0.28 per share earnings for its next quarterly report to be conservative, given the iPod's sales momentum. As a result, Apple shares (AAPL) dropped by $3.78 on Thursday to close at $37.26.
Advanced Micro Devices gave investors a lot to chew on with its Wednesday earnings report, announcing a first-quarter loss and plans to spin off its money-losing Spansion LLC flash memory business. Spansion's $110 million loss in the quarter outweighed the processor group's operating profit of $92 million, and led to an overall company net loss of $17 million, the company's second consecutive quarterly loss. Loss per share was $0.04, and analysts had forecast earnings of $0.02.
While the Spansion spinoff would allow the company to separate the part of its business that is most subject to commodity-market supply and demand fluctuations, some analysts saw a downside: Without Spansion, AMD has to fight mighty Intel Corp. solely on the strength of its processor business. Company shares (AMD) dropped $0.80 on Thursday to $16.26
On the business-management software front, software maker Siebel Systems Inc. (SEBL) shares Wednesday dropped by $0.29 to $8.68 after the company announced that Chief Executive Officer J. Michael Lawrie resigned after less than a year on the job, and that software executive George Shaheen will succeed him. Earlier this month it announced that it expects revenue and earnings for the first three months of 2005 to come in below expectations, as a result of deals slipping through in the quarter's final days.