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October 29, 2010, 10:16 AM EDT
By Dina Bass and Ian King
(Updates with today?s trading in sixth paragraph.)
Oct. 29 (Bloomberg) -- Microsoft Corp. followed Intel Corp. and Texas Instruments Inc. in reporting a tradeoff likely to weigh on technology sales through year?s end: While corporate customers are spending more, consumers are keeping wallets shut.
Microsoft yesterday posted first-quarter results that were buoyed by corporate demand, even as households held off on personal-computer purchases. Quarterly earnings by Texas Instruments and Intel this month also reflected lackluster buying by consumers.
Corporations that cut spending during the recession are now upgrading aging systems and stepping up orders for computers and software. By contrast, households concerned about joblessness and home prices are capping companies? sales growth. That poses a challenge to an industry increasingly dependent on consumers, who may represent 30 percent of total technology spending in the next few years, up from about 20 percent now, according to researchers at IDC in Framingham, Massachusetts.
?The consumer is kind of damaged for a while,? said Pat Becker Jr., principal at Becker Capital Management in Portland, Oregon, which oversees about $2.3 billion in assets, including 1.5 million Microsoft shares. ?On the business side, the corporate balance sheet is as good as we?ve ever seen there. But you have two different balance sheets.?
Microsoft yesterday said net income rose 51 percent to $5.41 billion, or 62 cents a share, compared with the 55 cents projected by analysts surveyed by Bloomberg. The 25 percent sales increase, to $16.2 billion, was fueled by demand for Office 2010, corporate versions of Windows 7 and software for running the server computers that anchor corporate networks.
?Strong? Business Demand
Microsoft, based in Redmond, Washington, gained 46 cents, or 1.8 percent, to $26.74 at 10:12 a.m. New York time on the Nasdaq Stock Market. The stock had dropped 14 percent this year before today.
Consumer PC shipments grew less than 10 percent, while computers for businesses rose in the mid-teens, General Manager Bill Koefoed said on a conference call. Microsoft gets about 70 percent of revenue from businesses and the rest from consumers, according to Brent Thill, an analyst at UBS AG in San Francisco.
?Business demand was very strong and that was a big driver of Office and Server sales,? said Chief Financial Officer Peter Klein said in an interview. ?Consumer PC growth was a little less than people had predicted three months ago.?
At Intel, the world?s largest maker of computer chips, and Texas Instruments, which ranks No. 2 in the U.S., the split between consumers and companies was more pronounced.
Intel, Texas Instruments
Intel, based in Santa Clara, California, lamented slumping demand among consumers in the U.S. and Europe, even as corporate buying helped the company predict fourth-quarter sales that may exceed analysts? estimates. Texas Instruments, based in Dallas, forecast smaller fourth-quarter sales than some analysts had estimated, citing a slowdown in consumer-electronics spending.
Texas Instruments Chief Executive Officer Rich Templeton said consumer demand is cooling, hurting sales of computers and televisions, while industrial demand remains ?especially strong.?
The round of growth fueled by the upgrading of dated machinery could peter out in the first half of next year if concerns over growth persist, said Stephen Minton, an analyst at IDC.
?If the economy is still struggling three months from now, companies will be pretty quick to put spending on hold,? he said. ?Companies are still pretty nervous.?
Case in point: International Business Machines Corp., the world?s largest computer-services provider, said services signings fell 7 percent to $11 billion in the third quarter, the third straight quarterly drop in new contracts.
Consumers On Sidelines
The increasing importance of consumers to the computer industry is being felt by chipmakers, whose rebound from the recession last year was partly fueled by demand for laptops.
The industry is on course to grow 18 percent from last year on an annual basis, according to Intel CEO Paul Otellini. Yet, this year?s holiday shopping surge may fall short. Intel, whose chips run more than 80 percent of the world?s PCs, usually gets an 8 percent increase in fourth-quarter revenue from the previous three months amid year-end holiday shopping.
Intel says sales will grow at most 6.3 percent this quarter from the third. At the low end of Intel?s forecast, revenue will decline. Advanced Micro Devices Inc., Intel?s closest rival in processors, predicted sales will be little changed this quarter.
U.S. consumers will spend about 2 percent less on gifts this holiday season as shoppers remain concerned about a weak economy, the Consumer Electronics Association said earlier this month, citing an annual survey.
Apple Exception
The average consumer will spend $750 on holiday gifts, the industry trade group said Oct. 19. A third of the survey?s respondents said they planned to reduce spending for reasons related to unemployment, the association said.
Some technology companies are still benefiting from consumer spending. Apple Inc. posted record earnings last quarter after selling 14.1 million iPhones, more than analysts predicted. Samsung Electronics Co., the biggest maker of televisions and other consumer electronics, reported a 17 percent profit increase, also a record.
Many households are putting off PC purchases and opting instead for tablets, such as Apple?s iPad.
?This holiday season is going to be absolutely fantastic? for Apple, said Michael Obuchowski, chief investment officer of First Empire Asset Management, which holds Apple shares. ?They were able to refresh their entire product line during the recession. All of their devices are new designs.?
Outside the technology world, retail spending on clothes and other goods may be starting to recover. Analysts expect shares of Macy?s Inc., Target Corp., Nordstrom Inc. and Kohl?s Corp. to jump over the next year. Economists lifted estimates for consumer purchases in the third quarter after retail sales climbed more than forecast in September.
?The consumer market is growing, but at a slower pace than the business sector,? Gregory Spierkel, chief executive officer of Ingram Micro Inc., the biggest distributor of computer equipment. ?That was not the story last year.?
--With assistance from Brian Womack and Ryan Flinn in San Francisco. Editors: Tom Giles, Nick Turner.
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net.
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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(Updates with today?s trading in sixth paragraph.)
Oct. 29 (Bloomberg) -- Microsoft Corp. followed Intel Corp. and Texas Instruments Inc. in reporting a tradeoff likely to weigh on technology sales through year?s end: While corporate customers are spending more, consumers are keeping wallets shut.
Microsoft yesterday posted first-quarter results that were buoyed by corporate demand, even as households held off on personal-computer purchases. Quarterly earnings by Texas Instruments and Intel this month also reflected lackluster buying by consumers.
Corporations that cut spending during the recession are now upgrading aging systems and stepping up orders for computers and software. By contrast, households concerned about joblessness and home prices are capping companies? sales growth. That poses a challenge to an industry increasingly dependent on consumers, who may represent 30 percent of total technology spending in the next few years, up from about 20 percent now, according to researchers at IDC in Framingham, Massachusetts.
?The consumer is kind of damaged for a while,? said Pat Becker Jr., principal at Becker Capital Management in Portland, Oregon, which oversees about $2.3 billion in assets, including 1.5 million Microsoft shares. ?On the business side, the corporate balance sheet is as good as we?ve ever seen there. But you have two different balance sheets.?
Microsoft yesterday said net income rose 51 percent to $5.41 billion, or 62 cents a share, compared with the 55 cents projected by analysts surveyed by Bloomberg. The 25 percent sales increase, to $16.2 billion, was fueled by demand for Office 2010, corporate versions of Windows 7 and software for running the server computers that anchor corporate networks.
?Strong? Business Demand
Microsoft, based in Redmond, Washington, gained 46 cents, or 1.8 percent, to $26.74 at 10:12 a.m. New York time on the Nasdaq Stock Market. The stock had dropped 14 percent this year before today.
Consumer PC shipments grew less than 10 percent, while computers for businesses rose in the mid-teens, General Manager Bill Koefoed said on a conference call. Microsoft gets about 70 percent of revenue from businesses and the rest from consumers, according to Brent Thill, an analyst at UBS AG in San Francisco.
?Business demand was very strong and that was a big driver of Office and Server sales,? said Chief Financial Officer Peter Klein said in an interview. ?Consumer PC growth was a little less than people had predicted three months ago.?
At Intel, the world?s largest maker of computer chips, and Texas Instruments, which ranks No. 2 in the U.S., the split between consumers and companies was more pronounced.
Intel, Texas Instruments
Intel, based in Santa Clara, California, lamented slumping demand among consumers in the U.S. and Europe, even as corporate buying helped the company predict fourth-quarter sales that may exceed analysts? estimates. Texas Instruments, based in Dallas, forecast smaller fourth-quarter sales than some analysts had estimated, citing a slowdown in consumer-electronics spending.
Texas Instruments Chief Executive Officer Rich Templeton said consumer demand is cooling, hurting sales of computers and televisions, while industrial demand remains ?especially strong.?
The round of growth fueled by the upgrading of dated machinery could peter out in the first half of next year if concerns over growth persist, said Stephen Minton, an analyst at IDC.
?If the economy is still struggling three months from now, companies will be pretty quick to put spending on hold,? he said. ?Companies are still pretty nervous.?
Case in point: International Business Machines Corp., the world?s largest computer-services provider, said services signings fell 7 percent to $11 billion in the third quarter, the third straight quarterly drop in new contracts.
Consumers On Sidelines
The increasing importance of consumers to the computer industry is being felt by chipmakers, whose rebound from the recession last year was partly fueled by demand for laptops.
The industry is on course to grow 18 percent from last year on an annual basis, according to Intel CEO Paul Otellini. Yet, this year?s holiday shopping surge may fall short. Intel, whose chips run more than 80 percent of the world?s PCs, usually gets an 8 percent increase in fourth-quarter revenue from the previous three months amid year-end holiday shopping.
Intel says sales will grow at most 6.3 percent this quarter from the third. At the low end of Intel?s forecast, revenue will decline. Advanced Micro Devices Inc., Intel?s closest rival in processors, predicted sales will be little changed this quarter.
U.S. consumers will spend about 2 percent less on gifts this holiday season as shoppers remain concerned about a weak economy, the Consumer Electronics Association said earlier this month, citing an annual survey.
Apple Exception
The average consumer will spend $750 on holiday gifts, the industry trade group said Oct. 19. A third of the survey?s respondents said they planned to reduce spending for reasons related to unemployment, the association said.
Some technology companies are still benefiting from consumer spending. Apple Inc. posted record earnings last quarter after selling 14.1 million iPhones, more than analysts predicted. Samsung Electronics Co., the biggest maker of televisions and other consumer electronics, reported a 17 percent profit increase, also a record.
Many households are putting off PC purchases and opting instead for tablets, such as Apple?s iPad.
?This holiday season is going to be absolutely fantastic? for Apple, said Michael Obuchowski, chief investment officer of First Empire Asset Management, which holds Apple shares. ?They were able to refresh their entire product line during the recession. All of their devices are new designs.?
Outside the technology world, retail spending on clothes and other goods may be starting to recover. Analysts expect shares of Macy?s Inc., Target Corp., Nordstrom Inc. and Kohl?s Corp. to jump over the next year. Economists lifted estimates for consumer purchases in the third quarter after retail sales climbed more than forecast in September.
?The consumer market is growing, but at a slower pace than the business sector,? Gregory Spierkel, chief executive officer of Ingram Micro Inc., the biggest distributor of computer equipment. ?That was not the story last year.?
--With assistance from Brian Womack and Ryan Flinn in San Francisco. Editors: Tom Giles, Nick Turner.
To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net.
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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