Technology Focus: 5 Takeaways From Tech Earnings

 @DavidZie
on October 28 2012 10:12 AM

The flood of technology corporate earnings report has ebbed, with the usual number of surprises. Still, if investors had paid attention to the out-of-cycle reports from leaders like Hewlett-Packard Co. (NYSE: HPQ), Oracle (Nasdaq: ORCL), the No. 1 database developer, and Cisco Systems Inc. (Nasdaq: CSCO), the No. 1 provider of Internet gear, they wouldn’t have been surprised.

The first takeaway for investors and consumers: Only the strongest companies are thriving. That holds for the likes of Apple (Nasdaq: AAPL), the world's most valuable technology company, International Business Machines Corp. (NYSE: IBM) and Verizon Communications (NYSE: VZ), the No. 2 U.S. carrier.

To use the language of Tony Soprano, they’re “good earners,” with solid cash flow, oodles of customers and good prospects for the fourth quarter and beyond.

On the other hand, a rival to Intel (Nasdaq: INTC), the No. 1 chipmaker, Advanced Micro Devices (NYSE: AMD), reported a $157 million net loss and plans to fire 1,800 more employees this quarter. IBM rival HP is still firing people amid a four-year “restructuring.”

The next is that once sophisticated new products have shipped, tech companies atop the supply chain have to deliver. In other words, Apple better sell tens of millions of iPhone 5s, iPads and iPad Minis this quarter; Microsoft needs a hit with Windows 8 and the Surface tablet and Amazon.com Inc. (Nasdaq: AMZN), the No. 1 e-retailer, with the newest Kindle Fire.

Hats off to Samsung Electronics (Seoul: 005930), the world’s most aggressive technology company. The biggest maker of DRAM chips has become the biggest maker of smartphones with its Galaxy S III and earlier models, as well as a profit giant, reporting record net income of 8.12 trillion Korean won (US $7.42 billion).

A lot of suppliers and customers are gambling on the winners' success, including Britain’s ARM Holdings (Nasdaq: ARMH), whose chips are in the iPad, iPhone and many other portable devices; the PC makers like HP, Lenovo Group (Pink: LNVGY) and Dell (Nasdaq: DELL), the No. 3 PC maker, which control the Windows 8 rollout and Google (Nasdaq: GOOG), the No. 1 search engine, whose Android OS runs Samsung phones and just about everyone else’s not in Apple’s iOS 6 universe.

It also helps to have cash and investments: Apple has more than anyone else – a monumental $121.25 billion – for development and marketing; Facebook (Nasdaq: FB), the No. 1 social networking site, has $10.5 billion and Google, $45.7 billion. IBM reported about $17.5 billion while Intel had only $6 billion.

That kind of money can underwrite a lot of development and support new hiring, although hoards of Apple’s size are truly obscene, even with a $2.65-a-share quarterly dividend!

Another takeaway: Get customers to use products more so as to generate more revenue. So with its 188 million active user accounts, Amazon ought to be able to sell more merchandise, more Kindle Fires (and more web services) than before.

The Big Three mobile phone carriers all reported more net smartphone customers and higher average revenue per user (ARPU) with Verizon Wireless reporting a ARPU of $145.42, followed by AT&T’s $65.20 and Sprint Nextel Corp.’s (NYSE: S) $61.18.

Indeed, if consumers derive more content from mobile platforms, that could wreak havoc with “older” media formats such as from Netflix Inc. (Nasdaq: NFLX), whose third-quarter earnings plunged 88 percent, or Zynga Inc. (Nasdaq: ZNGA), which reported another net loss, $52.7 million, or 7 cents.

One of the pillars of Apple’s profitability is wedding customers to its iOS, so that they come to the company directly for content and support, while using their mobile phone supplier for data. That will increase next month when the long-term evolution (LTE) version of the iPad ships.

Finally, one last takeaway: be behind the scenes, with billing or analytical products needed to monitor the technology environment. Companies like Amdocs Ltd. (NYSE: DOX), provide the software to the mobile carriers for billing all that extra data; EMC Corp. (NYSE: EMC) is the biggest maker of storage products, virtualization software and a big player in security services, and Adobe Systems Inc. (Nasdaq: ADBE) remains tops in publishing, digital media and design and now in app development.

Shares of Amdocs have gained 15.3 percent this year, EMC’s are up 11.2 percent and Adobe’s have risen 20 percent.

 

 

 

 

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