Excuses and More Excuses for Lower Tech Earnings

By Carol Kopp  JAN 15, 2013 2:28 PM

Dubious expectations for Microsoft, Intel, and others as tech earnings season approaches.


The earnings season hasn’t yet begun for technology companies, but a consensus is forming: It isn’t going to be pretty. Let’s review the three big reasons being cited for tech’s low expectations.
Excuse No. 1: Nobody “Flushed.”
What a disgusting analogy! As you’ll remember, our elected representatives in Washington celebrated the festive holiday season by threatening to toss the US off a fiscal cliff. That is, they couldn’t reach agreement on how to tax or spend, even though their failure to act could crash the economy. This made business managers, particularly IT managers, so nervous that they couldn’t do what they like to do at the end of every year, which is to spend every last dollar that is left in their budgets before their bosses can claw it back. For maximum detrimental impact, our elected representatives kept up the drama past midnight on New Year’s Eve.
Ergo, IT managers never got to flush.
Worse yet, IT managers may continue to be cautious with their new budgets in the first quarter of 2013. That’s because our elected representatives, having declined to gut the economy on January 1, felt obliged to immediately schedule another fiscal crisis, due to reach hysteria pitch in late February. The new plot twist includes jeopardizing the national debt ceiling, so now we’ve got a world-threatening problem to worry about.
This is the bottom line: Analyst consensus now expects the technology industry companies that are in the S&P 500 to report a 1% drop in the fourth quarter, compared to an average 2.8% rise that is expected for the full S&P.
Moreover, the scheduled Part 2 of the fiscal crisis is expected to decimate first-quarter tech profits, lowering expectations for technology companies to 2.6% growth in the period, from an estimate of 9% only three months ago, according to forecasting service Thomson Reuters I/B/E/S.
Excuse No. 2: A Smartphone Ate My Lunch.
Samsung (PINK:SSNLF) announced Monday that it has sold 100 million of its popular Galaxy S smartphone devices worldwide since the line was introduced in May 2010. It took Apple (NASDAQ:AAPL) four years to hit that mark with iPhone sales.
In the US, two major carriers, Verizon (NYSE:VZ) and AT&T (NYSE:T), have announced record smartphone activations in the fourth quarter.
Anything larger or heavier than a tablet isn’t doing so well.
Two new reports underline the trend. International Data Group (IDG) reports that worldwide shipments of PCs fell 6.4% during the fourth quarter.

Gartner Group estimates the PC sales drop at 4.9%. It also finds more hope for PCs—in the glimmerings of a business equipment replacement cycle.
But it’s pretty clear that smaller, lighter, cheaper portable devices now adequately meet the computing needs of many people most of the time.
Excuse No. 3: It’s All Microsoft’s (NASDAQ:MSFT) Fault.
The IDG report puts the blame for lower PC sales squarely on Windows 8, Microsoft’s radically new operating system, which IDG says “failed to provide a spark” for a new round of PC sales. Shipments totaled 89.8 million units, compared to 95.9 million in the same quarter a year before.
The jury is still out on whether this is a slow transition or a downward spiral. Microsoft claims 60 million Windows 8 licenses have been sold since the new version was introduced in October, roughly equivalent to Windows 7 sales.
Gartner leans towards downward spiral. In its report on the year-end decline in PC sales, it concludes, "Whereas... once we imagined a world in which individual users would have both a PC and a tablet as personal devices, we increasingly suspect that most individuals will shift consumption activity to a personal tablet, and perform creative and administrative tasks on a shared PC."
Microsoft announces its quarterly earnings Thursday, January 24. In anticipation of slow adoption of Windows 8, Morgan Stanley downgraded Microsoft from “overweight” to “equal weight.” Many companies, it points out, are just getting around to upgrading to Windows 7.
Intel (NASDAQ:INTC) reports on Thursday, January 17. Expectations are lower there, too, in part because Intel has not yet seen much of a payoff for all the money and energy it has put into promoting its “ultrabooks.” These faster, lighter laptops, made by many manufacturers, use a latest-generation Intel chip, and Microsoft Windows 8.
Position in MSFT.

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