Technology Stock Roundup: Earnings Spotlight on Intel/Google, Yahoo/AMD Plunge

The tech earnings season kicked off last week, with Intel (INTC) and Google (GOOGL) pulling off another solid quarter, while Yahoo (YHOO) and Advanced Micro Devices (AMD) disappointed. Here are the top stories:

Earnings Highlights

Intel Shares Up: Intel shares jumped post its very strong second-quarter results that saw earnings growing strong double digits and moving past management guidance and our estimates. The results indicated PC and data center strength and a growing IoT (Internet of Things) segment. Mobile profits remain a disappointment for now, but unit growth remains on track. Mobile volumes should accelerate in the second half of 2014 but in the meantime, subsidies (contra revenue) continue.

Google Also Up: Google missed our earnings estimate while exceeding on the top line. Its pains: proliferation of mobile that is seeing Facebook (FB) stealing digital ad market share and CPC declines that are being precipitated by programmatic buying trends. Its strengths: very strong growth even after several years in operation, a high level of innovation that has in fact picked up pace in the last few years and solid execution in the face of a constantly changing competitive landscape.

Yahoo Falls: Investors are increasingly concerned about Yahoo’s core business as the Alibaba IPO draws near. Mayer had planned to turn around the company in three years and two of those are up. So the clock is ticking and no one can really wait. Then the company reports results that just about meet estimates including gains from patent sales and a lower share count. No one is actually seeing the growth in display volumes, they are instead watching the decline in price per ad.

Similarly, the increased price per click in the search business is not as eye-catching as the lackluster growth in paid clicks. So naturally, the only reason to cheer is the fact that Yahoo will now sell only 140 million Alibaba shares instead of the previously-agreed upon 208 million because this enables it to participate in Alibaba’s growth.

AMD Falls Further: AMD shares plunged over 16% as the chipmaker missed earnings estimates and provided a very disappointing guidance. The AMD turnaround story hinges on diversification away from PCs and strength in gaming devices where it has won sockets at all the leading consoles. But that doesn’t mean people won’t compare its PC market performance with that of Intel’s and punish the shares for the relative weakness.

Nor can they forgive management for falling behind in the turnaround plan. Moreover, the current quarter is likely to be its strongest for gaming devices, but apparently not strong enough to generate an encouraging revenue guidance.

IBM Beats But Shares Fall

Microsoft Job Cuts

Microsoft (MSFT) announced job cuts as expected but the unprecedented scale took everyone by surprise. Satya Nadella has been playing his cards close to the chest and making vague comments every now and then that basically left everyone guessing.

But the guessing game seems to be over now as the company has taken a decisive step away from devices to focus on cloud and mobile. Not that it will stop making tablets, phones or Xbox game consoles, but it will trim the Nokia team and shut down Xbox entertainment to focus on its enterprise and cloud based services and software. And if it needs to sell a few devices to make this happen, so be it.

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GOOGL = Class A shares (old, 1 vote per share)

Other stories you may have missed-

Corporate

Google Loses Arora, Parviz but Mulally Joins Board: Business Chief Nikesh Arora is joining Japan’s Softbank while Glass pioneer Babak Parviz is joining Amazon. Both are key positions and could create a temporary void. Additionally, Parviz leaving could mean a Glass replication from Amazon that the e-tailer decides to distribute for free.

Google has said previously that Glass is expensive to produce, which is why the gadgets appear expensive. But on the positive side, ex-Ford CEO Allan Mulally has joined the Google board, lending further credibility to its May 27 announcement that it would have a 100 proprietary fully-autonomous vehicles in trial starting this year.

Regulatory

FCC Extends Comment Period for Net Neutrality: The deadline has shifted from Tuesday midnight to Friday midnight, but the problem, which started with a Columbia Court of Appeals tossing out net-neutrality rules this January, could take years to get resolved. The problem of net neutrality arose because broadband Internet providers such as AT&T, Comcast and Verizon are saddled with the huge cost of providing infrastructure for burgeoning traffic that content providers avail of in order to grow.

The carriers want in on content provider profits; put another way, they want to transfer some of their costs to content providers (Google, Netflix, etc). They argue that network innovation needs to be incentivized and so they want to try out differential pricing models.

Not surprisingly, the Internet Association, representing Amazon (AMZN), Facebook, Google, Twitter and other Internet companies have said that "Segregation of the Internet into fast lanes and slow lanes will distort the market, discourage innovation and harm Internet users." The FCC is in support of net neutrality, but in order to do this, it would have to reclassify broadband providers as common carriers, which is not going to be easy.

New Technology/Products

Microsoft Begins Windows Phone 8.1 Rollout: Microsoft said that the global rollout for Lumia users started last week and would continue over several more weeks. It offers an improved lock screen, a new action center and changes to the start screen, bundled with other features like Skype and Internet Explorer 11. It also includes a beta version of its new virtual assistant Cortana and the Cyan firmware update.

Google and Novartis combine on Smart Lenses

Savings.com Launches PriceJump: The new PriceJump comparison shopping app apparently directs Amazon customers to better deals on other sites. Based on the 5,000-odd retailers and third-party sites it scans, Savings.com claims that generally there are better deals than Amazon 50% of the time and for products costing more than $100, 70% of the time. But it does not compare shipping costs, product availability and delivery times where Amazon is tops.

Digital Books Subscription Service from Amazon: Amazon is apparently testing an all-you-can-read service called Kindle Unlimited for $9.99 a month. The model is not new -- Scribd and Oyster already do something similar and Amazon Prime and Netflix have a similar model for videos. But Amazon is the largest book-seller in the world with the largest library and it has got the upper hand in legal battles involving book pricing. It is currently in the midst of intense pricing negotiations with publishers Hachette Book Group and Simon & Schuster.

M&A

IGT Goes for $4.7 Billion: Italian lottery system maker Gtech Spa agreed to fork out the cash and stock necessary to buy out the slot machine maker at an 18% premium to prevailing share prices. Battling the recession and growing competition from companies like Scientific Games and Konami, IGT has seen declining revenue and market share in the last few years. But it still makes a nice fit for Gtech, which is trying to expand its U.S. market share.

Yahoo Buys Video Streaming Startup Called RayV: The deal will bring RayV’s research team in TelAviv to Yahoo’s offices in the same city and a software suite that includes a content-distribution network, a content-management system and digital-rights management that will help it deliver on its video aspirations.

Cisco Buys Assemblage: Cisco snapped up collaboration services provider Assemblage to boost a business that has seen the effects of weak public sector spending and increased deferred revenue that goes with the SaaS revenue model. Assemblage is primarily a provider of cloud-based collaboration tools that require nothing but an Internet browser.

Collaborations

Apple, IBM Team Up to Target Enterprise Growth: Apple has joined with IBM in what the two described as a landmark deal. The collaboration will see IBM tailoring its software expertise in cloud services, security and big data analytics for Apple devices that it pushes to its enterprise customers. The two are betting on custom solutions for industries such as retail, healthcare, banking, travel and transportation to drive penetration. This gives both Apple and IBM a strong footing in the increasingly mobile enterprise market and is potentially, a headache for Microsoft and Google.

Cisco-Microsoft for Data Center Modernization: The three-year go-to-market agreement targeting enterprise customers and service providers was announced at the Microsoft Worldwide Partner Conference. The two sales teams will now pursue cloud and data center opportunities together and the partner incentive programs will also be aligned. They will focus on the United States, Canada, UK, Germany, France and Australia in the first year.

Some Numbers

eMarketer Estimates Digital Ad Revenue Share: The research firm expects the top four players in 2014 to be Google, Facebook, Microsoft and Yahoo. Google’s share will shrink from 31.92% to 31.45% as its global digital ad revenue grows 15.0% compared to market growth of 16.7%. Mobile Internet ad revenue will help Facebook’s revenue share go from 5.82% to 7.79%. Facebook’s global mobile Internet ad revenue share will climb from 17.8% to 22.3%. Yahoo and Microsoft continue to fight for the third spot, but eMarketer expects Microsoft to surpass Yahoo for the first time this year with their respective shares at 2.54% and 2.52%, respectively.

Apple Devices Lead eCommerce Traffic: Analytics platform Custora reports that for the March quarter, 53.6% of ecommerce sales through smartphones and 80% of ecommerce sales through tablets came from Apple’s iPhone and iPad, respectively. Samsung was second on both platforms, accounting for 30.5% of sales through smartphones and 12.4% of sales through tablets. Amazon was far behind at a 4.1% share of sales through tablets. Amazon simply can’t afford to be cut out of any of these platforms, which explains why it is making such a determined effort in devices.

Microsoft’s Pricing Strategy Pays Off: Microsoft recently unbundled the Kinect motion sensor from its Xbox game console, which allowed it to sell the device at $399, same as Sony’s PS4. This is probably the reason that the company was able to report last week that June sales doubled.

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