Wall Street Beat: Stocks Tank As Tech Earnings Look Mixed So Far

Microsoft shares provide a bright spot as other tech stocks decline

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Fri, January 24, 2014

IDG News Service (New York Bureau) — Stocks including shares of tech companies tanked on Friday mainly due to worries about slowing global economic growth, but the mixed earnings reports from IT giants did nothing to calm concerns.

Major exchanges and stock indexes closed down Friday, as the Dow Jones Industrial Average plunged 318.24 points to close at 15879.11 Friday. Of the four tech stocks on the Dow, IBM, Cisco and Intel closed down, with only Microsoft closing up for the day. The Nasdaq Computer Index closed at 2016.34, down by 38.85 for the day.

Microsoft boosted investor optimism Thursday by reporting a 14 percent increase in revenue, to US$24.51 billion, for the quarter ending Dec. 31.

Profit was up by 3 percent, to $6.56 billion. Revenue was boosted by strong sales of the company's consumer devices unit, which makes the Xbox console and Surface tablets.

Microsoft closed at $36.81 Friday, up by $0.75 a bright spot in a gloomy day.

But concerns about shrinking profit remain, as Microsoft shifts from the high-margin software business to become a services and devices company. The discrepancy between the increase in revenue and profit is a broad indicator that higher sales of such a company does not translate directly into perfectly corresponding higher net income.

For example, although sales from Surface tablets rose from $400 million in the September quarter to $893 million in the December quarter, Microsoft actually lost money in that business due to the cost of making and marketing the tablets.

Meanwhile, as Microsoft prepares to close the deal to acquire Nokia's devices business, the Finnish mobile phone maker reported disappointing sales.

Revenue for Nokia's Devices & Services business was a!2.6 billion, (US$3.5 billion), down 29 percent year on year. The company is reporting that part of the business separately now, as it moves to close the sale to Microsoft, expected in March.

Nokia said it shipped fewer phones overall, year-on-year, but that smartphone sales increased. Though the company did not break out specific numbers, the rise in smartphone shares could be the silver lining in the earnings announcement, since smartphones have higher margins than low-end phones.

Nokia shares on the New York Stock Exchange slipped by $0.17 Friday to close at $6.86.

News from elsewhere on the mobile phone and hardware front lately has not been good.

On Friday, Samsung Electronics reported that profit was flat year over year in the fourth quarter. The company reported that its IT and mobile communications unit, which includes smartphones and tablets, had operating profit of 5.47 trillion Korean won (US$5 billion), about the same as for the year-earlier period, though revenue for its mobile business grew 8.7 percent to over 32 trillion won.

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