Microsoft joins Intel with rising sales

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MicrosoftShadow1 Reuters. A shadow of a man using his mobile phone is cast near Microsoft logo at the 2014 Computex exhibition in Taipei June 4, 2014.

San Francisco - The personal-computer industry showed signs of improvement last quarter as businesses bought enough machines to revive sales growth at Microsoft and fuel Intel’s biggest revenue gain in more than two years.

Intel’s sales increased 7 percent in the quarter that ended in June, according to the average of analysts’ estimates compiled by Bloomberg.

Microsoft is likely to report that revenue rose 10 percent after stagnating the previous period, the projections show.

The software maker may also announce job cuts related to the acquisition of Nokia Oyj’s handset unit, people with knowledge of the matter have said.

Corporations are replacing older computers at a faster clip, spurring a 6.9 percent increase in US PC unit sales last quarter, according to researcher IDC.

That’s good news for Intel, Microsoft and other companies that rely on demand for PCs and have been slow to adapt to the shift toward mobile devices and software delivered via the Internet.

“A lot of the growth is in big companies,” said Loren Loverde, who heads PC market research at IDC.

Intel releases results today, while Microsoft will report earnings on July 22.

The smartphone boom, meantime, is benefiting Apple, the largest US maker of these handheld computing devices, as well as Facebook and Twitter, which make money from ads shown to users of mobile gadgets.

Apple will probably report a 7 percent increase in sales, analysts predict.

Revenue probably rose 55 percent at Facebook and may have more than doubled at Twitter, according to the projections.

Semiconductors Lead

Among industry groups in the Standard & Poor’s 500 Index, semiconductors are projected the post the strongest revenue growth for the second quarter, with 12 percent.

That compares with 4.9 percent sales growth estimated for the broader information-technology group.

While PC shipments declined in 2012 and 2013, some markets, such as the US, are seeing growth again as companies upgrade Intel-based PCs to get newer versions of Microsoft’s Windows.

Intel, the world’s biggest chipmaker, raised its forecast for second-quarter sales last month on improving business demand for PCs, to $13.7 billion, plus or minus $300 million.

Analysts are projecting, on average, revenue of $13.7 billion, according to data compiled by Bloomberg.

The Santa Clara, California-based company may report revenue of more than $14 billion for the third quarter, projections show, surpassing that threshold for only the second time ever.

Microsoft Jobs

Microsoft is projected to post sales of $22 billion for its fiscal fourth quarter, which ended in June, according to the average of analysts’ estimates.

The Redmond, Washington-based software maker in recent quarters has been benefiting from increasing sales in its newer Internet-based programs for the cloud.

Since much of Microsoft’s Windows and Office software is used on desktop computers, a recovery in those products could bolster results.

“A stabilising PC market could, we believe, drive higher than expected Windows sales,” said Mark Moerdler, an analyst at Sanford C. Bernstein & Co. who has the equivalent of a buy rating on Microsoft.

Much of the focus will be on what chief executive Satya Nadella reveals about the financial and staffing implications of his first mission memo, issued last week.

Microsoft is planning its biggest round of job cuts in five years, in divisions such as engineering and marketing, as well as areas of overlap with Nokia Oyj’s handset business, which it acquired this year.

The restructuring -- which may be announced as soon as this week -- may end up being the biggest in Microsoft’s history, topping the 5,800 jobs cut in 2009, two of the people said.

Some details are still being worked out, two of the people said.

Nadella declined to comment about job cuts or any specific steps resulting from the note, saying he’d discuss implementation when Microsoft reports earnings.

The cuts could involve 5 percent to 10 percent of a workforce that swelled to about 127,000 employees with the addition of Nokia, according to Rick Sherlund, an analyst at Nomura Securities who has a buy rating on Microsoft.

Apple Products

Apple, the world’s largest technology company by market value, will also report on July 22.

Apple’s stock has gained 20 percent this year on investor optimism about a new batch of products on the horizon.

Pent-up demand for bigger-screen iPhones will lead to record sales later this year, according to Michael Walkley, an analyst at Canaccord Genuity Group who has a buy rating on Apple.

Analysts project Cupertino, California-based Apple will post an 8 percent rise in net income to $7.45 billion as sales climb to $37.8 billion, fuelled by steady demand for the iPhone, which accounts for about half the company’s revenue.

The rebound in PCs has coincided with a slowdown in sales of Apple’s iPads as the market becomes increasingly saturated.

Bigger smartphones are also partly responsible for the drop and sales of larger iPhones could cut further into tablet purchases, Walkley said.

IBM Challenges

While Microsoft, Intel and Apple are waiting to see if consumer demand will pick up in the second half of the year, technology companies that depend on corporate spending are contending with the growth of cloud computing.

Customers are increasingly storing data and software on the Web, rather than on their own hardware, curbing the need for servers and mainframes from International Business Machines and other computer makers.

IBM, reporting on July 17, is projected to post its ninth straight quarterly sales decline, according to the average of analysts’ estimates, as it faces weaker demand for hardware and waning sales in developing countries like China.

To meet profit targets, chief executive Ginni Rometty is moving IBM’s focus to cloud services and data analytics, while offloading less profitable businesses, such as its low-end server unit.

Lenovo Group has agreed to buy that division for $2.3 billion, pending a US national security review.

She’s cut jobs and reduced the Armonk, New York-based company’s tax rate to help boost earnings.

Web Sales

The transition to mobile computing remains both an opportunity and a challenge for Web companies that depend on advertising to fuel sales.

With ads command lower prices on mobile devices than they do on desktop computers, Google has is boosting the volume of ad sales.

The Mountain View, California-based Web-search giant, which will report earnings on July 17, is projected to post second-quarter sales, excluding revenue passed to partners, of $12.3 billion, an 11 percent increase from a year earlier.

In the first quarter, Google’s average price per click on an ad slipped 9 percent even as the number of hits on the promotions rose 26 percent.

While Google’s search engine is a common tool for surfing the Web on desktop computers, alternative applications are attracting users on smartphones and tablets.

EMarketer predicts that Google’s share of the US mobile-search ad market will decline to 64 percent in 2016, from 83 percent in 2012.

Mobile Ads

US ad spending on tablets and smartphones, meanwhile, will rise 83 percent this year, according to EMarketer.

Facebook is faring better in mobile ads, and is projected to make up 22 percent of the market this year, up from 5.4 percent in 2012, according to EMarketer.

Ad sales on tablets and smartphones now deliver a majority of Facebook’s ad business, after contributing almost nothing a few years ago.

“Facebook has become one of the leaders in adapting to the most important Internet industry trend,” Mark Mahaney, an analyst at RBC Capital Markets, wrote in a note.

He has the equivalent of a buy rating on Menlo Park, California-based Facebook.

Yahoo, Alibaba

Yahoo!’s report today will provide an update on its turnaround under chief executive Marissa Mayer, who has been at the helm for two years.

She’s seeking to expand content and ad deals following earlier efforts to attract users and better staff.

After adjusted sales fell 1 percent last year, Yahoo said revenue expanded by 1 percent in the first quarter, and analysts on average predict the Sunnyvale, California-based company will match that gain in the second quarter.

Still, investors will keep their focus on Yahoo’s stake in Alibaba Group, the largest Chinese e-commerce company, which is set to hold an initial public offering.

Yahoo is projected to bring in about $10 billion from the deal, and shareholders will look for any comments on how much of that, after taxes, will be distributed through buybacks or dividends.

Yahoo also could use the money to make acquisitions.

“The outcome of the highly anticipated Alibaba IPO in August, the tax treatment of the proceeds and use of the new cash are likely to drive the stock short-term,” Youssef Squali, an analyst at Cantor Fitzgerald, wrote of Yahoo in a note on July 11.

He has a buy rating on Yahoo. - Bloomberg News


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