July 19, 2013 12:42 am

Tech sector: don’t jump to conclusions

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Each group disappointed the market for its own reasons

If big tech is a bellwether than we are in store for a rocky remainder of 2013. That’s what the latest quarterly earnings from the titans Google, Microsoft, Ebay, Yahoo, Intel, Microsoft, SAP, IBM and Oracle show. Yet each disappointed the market for its own reasons – secular shifts, weakening end markets, unrealistic expectations – so do not look for a single unified theme either for tech or the broader market just yet.

Intel and Microsoft are being ravaged by their well-documented exposure to PCs. At Intel, PC chip revenue was down 8 per cent and Microsoft’s Windows division saw its revenue fall 6 per cent when excluding deferred revenue. The enterprise software vendors SAP, IBM and Oracle should seemingly be more secure given that they are embedded in corporate data centres. But, with their girth (each has annual sales of more than $20bn) along with upstarts that rent cheaper software to customers, it is difficult to see how these veterans can achieve meaningful growth. IBM’s shares rallied this week simply because it raised profit guidance by 1 per cent.

And what about the internet coterie of eBay, Yahoo and Google? Ebay’s done a fine job of transforming into a diversified retailer but it is looking abroad for growth and with economic weakness in Europe and Asia, it had to lower its outlook for the rest of the year. Yahoo’s shares keep rallying despite persistently declining ad revenue. This is what happens when one is prescient enough to invest $1bn in a Chinese e-commerce company potentially worth $100bn. And Google? Its shares have dipped 5 per cent when it had the temerity to increase revenue at a modest 19 per cent. Reflect on that. A $300bn company growing at nearly 20 per cent. A reminder why Google must not be lumped with these relative slowcoaches.

Email the Lex team in confidence at lex@ft.com

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