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A characteristically eye-catching jump in earnings at Google and the news that Microsoft would dig deep into its cash reserves to buy back another $40bn of its own stock brought some overdue relief to the battered technology sector late on Thursday.
The announcements from the leading internet and software companies came in the wake of another slide in technology stocks, as Wall Street took fright at the latest deterioration in the fortunes of Intel. Recent signs of weakening demand at hardware companies and mixed results from some of the biggest internet companies have added to the unease as the tech industry enters a seasonally weak part of the year.
Google continued to gain market share in the internet search business, and confirmed its greater success at converting searches into advertising revenues, as it reported an 88 per cent jump in net revenues for the second quarter of the year.
The performance was in marked contrast to rival Yahoo!, whose shares dropped by more than 20 per cent earlier this week after news that its search advertising revenues grew by only an estimated 25 per cent in the same period. Meanwhile Microsoft, which is trying to break into the business, said on Thursday that its search revenue had declined in the latest quarter as it switched to a new in-house advertising network.
Eric Schmidt, Google’s chief executive, sounded a characteristically bullish note of confidence in his company’s continuing headlong growth, pointing to opportunities in its market that are “unlimited at present.”
Meanwhile, Microsoft’s latest share repurchases, equal to a sixth of its current stock market value, will lift its cash distributions to more than $100bn since it first responded two years ago to Wall Street pressure to reduce the size of its cash mountain. Half of the money has been earmarked for a Dutch auction in which Microsoft will buy back shares at between $22.50 and $24.75, while the rest will be used for repurchases over an unspecified period.
Despite a 6 per cent bounce in its share price in after-market trading on Thursday, however, the historic pay-out by the world’s biggest software company, worth in aggregate more than the value of all but the biggest handful of US companies, has done little to rekindle interest in its flagging shares, which are nearly at their low point of the past four years.
Microsoft also produced a surprising bounce in revenues in its latest quarter despite weaker sales of PCs in recent months, as customers wait for the arrival of the new Windows Vista operating system. Thanks to strong growth in server software and sales of the new Xbox 360 games console, 1.8m units of which were shipped, Microsoft said its revenues had risen by 16 per cent to a higher-than-expected $11.8bn. The software company also issued a more positive forecast than expected for its latest fiscal year, which began this month, with projected growth of 12-14.5 per cent.