by CIO Staff

Wall Street Beat: Spring Earnings Dampen Tech

May 05, 20063 mins

Earnings season has left many technology companies worse off. Overall share prices for key IT vendors have come down this month because of some disappointing results.

The Nasdaq Composite Index gained ground toward the end of the week, following a big selloff in tech company shares in the wake of Microsoft’s report last week. Still, the index—often seen as a barometer for tech companies—is down for the month.

Microsoft, which reported a rise in revenue but missed expectations for earnings, suffered what many e-commerce and search companies have been plagued with: increasing research and marketing costs. In the online arena, such expenses are a necessary part of the effort to combat Google online. Microsoft shares still have not recovered from its announcement.

Worries about Microsoft also focus on expected costs for marketing major new upgrades of legacy products like Windows. AOL, whose results were reported by parent Time Warner Wednesday, also has legacy problems. AOL is in the middle of transitioning old subscribers from dial-up to new broadband services, and is losing users in the process. In addition, it is trying to move its business to an advertisement-based model, rather than one based on traditional dial-up subscription.

AOL revenue dipped 7 percent in the March quarter, to US$2 billion, as operating income fell 14 percent to $269 million. Though advertising revenue increased 26 percent, subscriptions declined in the United States and Europe. AOL weighed heavy on Time Warner’s overall results, as revenue missed expectations of analysts. Time’s shares dropped by $0.09 to $17.13 Thursday.

Other earnings news this week reflected many of the trends that have come up this earnings season.

Verizon Communications, reporting Tuesday, said that first-quarter revenue increased on strong wireless sales, but as with other telecom companies, it also saw earnings decline due to merger costs. Net income fell 7 percent to $1.6 billion, from $1.8 billion last year. Still, because hopes for the wireless sector run high, the fall in profit did not shake investor confidence. Verizon’s share price remained unchanged a day after its earnings announcement, and moved up slightly by $0.16 to close Thursday at $32.80.

Meanwhile, patent infringement lawsuits continue to play havoc with investor confidence. After Research In Motion (RIM) was threatened last month with closure due to a suit brought by NTP, the mobile device maker was hit late last week with another patent action, this time by Visto. Visto claims that RIM’s BlackBerry violates four Visto patents. Monday, RIM shares fell by $3.60 to $73.03, and stayed depressed for several days.

-Marc Ferranti, IDG News Service

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