It's All About the Earnings

• By Lafe Low
• 07/25/2007

Say what you will about global strife, global warming and global Harry Potter-mania -- things are looking pretty good at Microsoft and across much of the tech sector. This special edition of Redmond Report will give you a glimpse at how some of your favorites have weighed in for this quarter:

Xbox Can't Keep Microsoft Down
Even though they took a huge hit of slightly more than $1 billion to fix troubles with the Xbox, the Redmondians still reported a 7 percent increase in earnings for the quarter. Not even the otherworldly villains of "Halo" can chip away at the Windows and Office juggernauts.

Microsoft's fourth quarter profit was $3.04 billion. In the same quarter last year, its profit was a meager $2.83 billion. Revenue for this quarter was $13.37 billion, compared to $11.8 billion last year. Nice to see a bunch of kids from the Pacific Northwest doing so well.

As this was the close of the fourth quarter, Microsoft also checked in on its full fiscal year, and looked into the Magic 8-Ball for next year. For the 2007 fiscal year, Microsoft reported a whopping $51.12 billion in revenue, a 15 percent increase from last year. Next year, it expects to bump that up by $300 million.

The Windows, Office 2007 and server and tools divisions were all up from last year. Microsoft's online efforts, while bringing in more dollars than last year, saw the gap widen between formidable arch rivals Google and Yahoo.

Big Blue Keeps Cruising
IBM beefed up its earnings for the quarter over last year by a healthy 12 percent margin overall. Big Blue says strength in its software and services sales helped fuel the increase.

Selling its printing division also helped IBM fortify the quarter's results, bringing in an $81 million pretax bump. Straight revenue for the second quarter was $23.8 billion, up from $21.89 billion last year, a 9 percent increase. Profits for the second quarter were $2.26 billion (including the printer division sale), up from last year's $2.02 billion during the second quarter.

Breaking it down by regions and divisions, IBM looks quite good to the gray pinstripes on Wall Street. Revenue in North and South America was up 6 percent, to $10.1 billion. Revenue in Europe and the Middle East increased 13 percent, to $8.2 billion. In the Asia-Pacific region, revenues were up 10 percent, to $4.6 billion.

Software sales pulled in the biggest increase for IBM. While hardware only grew by 2 percent to $5.1 billion, software was up 13 percent to $4.8 billion. Services were also a big contributor with an increase of 10 percent, to $8.76 billion.

Looks like those old ads that stated "No one ever got fired for buying IBM" haven't lost their luster. Now, the same could be said on a personal level for buying IBM stock.

EMC Makes Huge Jump
You're loving life if you have some shares of data storage heavyweight EMC Corp. Its second quarter profit jumped almost 20 percent. If Microsoft and IBM's quarterly performances didn't leave Wall Street tongues wagging, EMC's certainly will. If you're keeping score, EMC has posted double-digit revenue growth for the last 16 quarters.

Profits for EMC's second quarter this year were $334.4 million, up from last year's quarterly profits of $279.1 million. Software licenses were the big cash cow, with a 27 percent increase. Storage is still the bread and butter at EMC, with a solid 18 percent growth.

Advanced Micro Devices Doesn't Advance
It wasn't a banner quarter for everyone, though. You know you have a tough road ahead of you when your primary competitor is a thoroughbred like Intel.

Advanced Micro Devices, or AMD for short, is doing its best to get its chips out there. It posted its third consecutive losing quarter. This quarter's loss was $600 million. This is quite a shift from last year, when AMD was chipping away at Intel's market share and racking up a quarterly profit of $88.8 million. AMD ended up with nearly 25 percent of the market at the end of last year.

Besides cutting prices this year to compete with Intel, AMD also dropped $130 million when it bought ATI Technologies. Those two factors can make for a tough quarter when it comes time to count the beans.

How do the rising and falling fortunes of these technology stalwarts affect you? How much do quarterly reports affect your buying decisions? Do they affect your personal fortunes? If you had a million to drop on tech stocks, where would you spend it? Send me your tips...I mean, send me your thoughts at [email protected].

Mailbag: Thoughts on Microsoft Research, More
On Monday, Doug asked readers what they thought about Microsoft Research, which some have criticized as being all show and no product. Here's what Dean has to say:

I would think Microsoft Research would have learned its lesson from Xerox PARC not capitalizing on marketable ideas, with the emphasis on marketable.

Perhaps the demos are cool and groovy in the lab but are not practical or are cost-prohibitive, or focus groups show that no one would really buy them.
-Dean

And Les chimes in with his thoughts on the trade deficit in the U.S. tech sector:

Bean counters (greed) and the short-term thought process is the driving force behind this deficit. We don't manufacture everything we buy so now we must buy what we used to make or never made in the first place.

One reader who wrote in recently buys only American-made and American-owned when possible. That is great, but I don't have that kind of money to throw away. I bought a foreign-made car and it has NOT had one recall or a trip to the repair show yet. I saved money here that I can now use to buy more products and services. I also agree with the comment that people must be willing to sacrifice. The problem with this is the only ones that will ever have to sacrifice are the workers and not the executives.

Quality is important for the products that I buy. Why would Microsoft push out an operating system that has defects? Why would American car manufacturers push defective cars out the door that must be recalled later? Is someone going to miss a bonus? Anyone that has ever worked in a manufacturing plant knows that answer.

The big problem with the trade deficit is our manufacturing leaders. They must change or watch their market grow smaller and smaller. If they don't, all of us will have to learn to say, "Would you like fries with that?"
-Les

Tell us what you think! Send an e-mail to [email protected] or leave a comment below.