I am still on alert for a larger pullback in the market. The larger picture suggests the SPX will li...
D-Day Ahead for 2 Tech Names?
07/16/2012 3:24 pm EST
Microsoft and Google report earnings on Thursday, and their short-term future depend on how they answer these important questions, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
The questions will fall into two groups. First, there will be questions that indicate Wall Street’s continuing worries about these two technology bellwethers.
Wall Street analysts expect Microsoft revenue to climb in the July quarter (the fourth quarter of the company’s fiscal 2012 year) by just 5% from the July quarter of 2011. Earnings are expected to drop to 62 cents a share from 69 cents.
Much of that is a reflection of the really dismal PC market. Research group Gartner estimated last week that PC shipments fell by 0.1% year-over-year in the July quarter, to 87.5 million units.
The Gartner forecast is backed up by reports from the Taiwanese companies that manufacture 90% of the world’s notebook PCs. For the quarter, those companies are forecasting just 7% growth from the first quarter of 2012. That’s well below the historical average of 21% growth, according to HSBC.
What analysts will want to know from Microsoft is some estimates for how much the introduction of Windows 8, scheduled to be loaded on PCs on sale in October, will add to those anemic sales forecasts.
In the case of Google, analysts will be waiting to see which company shows up—the one that saw operating margins erode and revenue growth disappoint in 2011, or the company that saw margins rebound in the first quarter of 2012 (as the company slowed additions to headcount) and that slightly beat expectations on revenue.
One puzzling metric that analysts have asked about in recent quarters is the drop in cost per click (what Google gets for each click on an ad or ad link) and the continued growth in overall ad revenue. Cost per click fell by 12% year-over-year in the first quarter of 2012.
Wall Street will also want to know about the company’s success in generating revenue from its new initiates in display and mobile advertising, YouTube, and its Chrome Internet browser.
Second, will be the new questions that focus on the two software companies’ most recent ventures into hardware. For Microsoft, the questions will deal with such crucial details as the exact on sale date this fall for specific versions of the Surface, Microsoft’s new hardware device that will go up against Apple’s (AAPL) iPad, Amazon’s (AMZN) Kindle Fire, and Samsung’s Galaxy Tab.
The Surface, along with Microsoft’s partnership with Nokia (NOK), are the company’s latest attempts to save itself from irrelevance in the mobile device market. Analysts will be looking to see if they can figure out to what degree they should be willing to overlook Microsoft’s stagnant PC revenues because of the future payoff from these mobile initiatives.
For Google, the questions will be about how the company will exploit its acquisition of Motorola Mobility, which closed on May 22 for $12.9 billion in cash.
Analysts will be listening for anything that will help them develop projections for growth in sales of the company’s Nexus 7 tablet, running Android 4.1 Jelly Bean, which was already sold out at many retailers in advance of the official mid-July sale date. (The company has said that that a new round of supply will hit stores on August 7.) How big was the initial shipment? How big will the restocking shipment be?
A key question, but one that I don’t expect Google to be able to answer, is how many Nexus 7 sales are coming out of the hide of Amazon’s Kindle Fire, and how many out of Apple’s iPad. The assumption to date is that the Nexus is more a Kindle Fire than iPad killer, but any data that clarifies that would be very welcome on Wall Street.
Apple reports its own quarterly earnings on July 24, and Amazon.com gets its turn on July 26.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple and Nokia as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.
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