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January 22, 2013 11:36 pm
Breathe in, breathe out. Technology’s fourth-quarter earnings season has passed its two most important tests. Google and IBM, which both reported on Tuesday evening, are the most important players in two huge swaths of the digital world and indeed the world economy – internet advertising and corporate information technology. The companies, with a combined $435bn in market value, are core holdings in growth and value portfolios, respectively. If either set of results contained nasty surprises, the ageing but apparently healthy bull market would have looked suddenly sickly.
Google – far more sensitive to economic softness than Big Blue – presented numbers that were a model of steadiness. Adjusting for currency and Motorola, revenues grew by 24 per cent, exactly in line with the previous two quarters. Growth in “clicks” on Google ads slowed, but ad price declines slowed too, leaving the spread between the two unchanged. Cost ratios, always a cause of heartburn for Google investors, were consistent with the previous quarter. “Steady as she goes” was what investors wanted to hear: the shares rose 5 per cent in late trading.
Reproducing last quarter’s effort would not have been enough for IBM. In that quarter, hardware revenues continued a long slump, gross profit growth in tech services and software slowed to nearly nothing, earnings per share growth slowed to 10 per cent (the bottom of IBM’s target range), and the company uncharacteristically declined to raise its earnings per share target. But the fourth-quarter results managed to reassure, to a greater or lesser extent, on all of these fronts, with hardware sales near the previous-year level, firming margins, and better EPS growth. Not a great quarter, but a relieving one. Shares rose 4 per cent. The market is free to keep rising, for at least one more day.
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