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Stocks slide as the electronics giants disappoint

While Intel Corp.'s Q2 2008 results were quite impressive, not everyone came out of the quarter quite as strong as Intel did.  AMD followed Intel in announcing quarterly earnings, and it contrasted Intel's gains with losses that were worse than expected.  Now Microsoft and Google have followed in AMD's suit, each announcing earnings that disappointed in their own ways.

Google was a victim of its own success to some extent.  With half of its revenue coming from the U.S., the company showed a troublesome slowing in advertising click-throughs, thanks perhaps to the struggling U.S. economy.  Google puts partners' text ads beside search results and is then paid when visitors to the search engineer clicked the links.

It was used to seeing rapid growth in traffic throughout its history and this yielded rapid growth in clicks.  Last year, the quarterly growth was 47 percent.  This year growth had slid to 19 percent, which for anyone besides Google would have been very impressive.  However, for Google, this meant that its profits were not as high as expected, and it disappointed analysts' lofty expectations.

It posted a profit of $4.63 a share, well below the average of $4.73 a share, which a Bloomberg compilation of analyst projections predicted.  Partly to blame also were rising costs of operation.  Google saw its research spending budget rise 65 percent.  It also languished under the legal war of attrition it has been waging against Viacom over its video sharing property YouTube.

Thanks in part to the extra overhead from defending itself against Viacom, Google's general and administrative costs rose 49 percent to $475M USD.  Google also was nonplussed to see employees leaving the company, a foreign experience for the company who promoted a "lifer" mentality among its workforce thanks in part to feel-good perks.

Microsoft also felt some heat from its Q2 results.  The company, which gets 60 percent of its income inside the U.S., disappointed analysts with only producing a profit growth of 42 percent, yielding $4.3B USD in profit (42 cents a share).  Analysts predicted stronger profits of 47 cents a share. 

Its problems stemmed in part to sliding Microsoft Office sales, which were thought to be negatively impacted by piracy.  The sales missed the company's goals for a second straight quarter.  Worse, Microsoft saw its online advertising missing targets and losing ground to Google.  Overseas Microsoft showed more promising growth, but this growth was unable to offset its slippage in the U.S.

Brian Rauscher director of portfolio strategy at Brown Brothers Harriman & Co. in New York says this is to be expected, and that there is little Google and Microsoft can do to escape the reality of the U.S. economy's struggles.  He said, "For any U.S. company, the domestic part of their products are going to come under pressure.  The U.S. consumer is getting pinched."

Jerome Dodson, chief executive officer of San Francisco- based Parnassus Investments, which has $1.4B USD in investments, including holdings in Google and Microsoft stock, stated "You can't consider technology a defensive sector at all.  We're going to have a small sell-off in technology."

Even Google CEO Eric Schmidt admitted that his company was struggling under "a more challenging economic environment."

Microsoft and Google paid a heavy price for falling short of expectations on the stock market.  Google stock fell $52.12, or 9.8 percent, Friday, its worst loss since its 2004 initial public offering.  Microsoft saw slightly less severe, but still grim, losses $1.66 a share, or 6 percent, its own worse loss since April 25 of this year. 

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Why I don't like corporations sometimes
By FITCamaro on 7/21/2008 9:31:16 AM , Rating: 5
A company makes $4.3 BILLION DOLLARS in profits and analysts complain that they didn't hit their expected profit of 47 cents a share.

What ever happened to companies being happy that they made a good profit and are able to keep their employees paid and continue developing their products? Now days it seems that companies are expected to grow their profits every quarter or they're failing. And they'll fire people to keep those profits rising. There's absolutely no loyalty to employees anymore.

By RamarC on 7/21/2008 10:32:14 AM , Rating: 2
it's called the stock market and it's why some companies have decided to buy up their own stock. "analysts" are one of the primary reasons big corporations and the market are so screwed up because their opinions matter more than real sales, real profits, and real employees.

RE: Why I don't like corporations sometimes
By blaster5k on 7/21/2008 11:08:41 AM , Rating: 2
The pursuit of profit is what drives companies to create better products and increase levels of efficiency, which isn't a bad thing. However, in recent times, it seems like much more emphasis is placed on the short term rather than the long term -- among both shareholders and corporations.

I guess people have grown lazy/impatient and fallen for the "get rich quick" spiel. It's not always a winning strategy in the end.

By FITCamaro on 7/21/2008 11:45:24 AM , Rating: 2
Exactly. It seems there is little focus on "how will this affect my company in the long term". Only focus on "how will this get me a bigger bonus this year?"

By michael2k on 7/21/2008 11:31:42 AM , Rating: 1
What you are talking about has nothing to do with stock prices and stock markets. You are only concerned with sustainability; if the company performance cannot meet expectations, then that means the expected value of the stock was too high. Therefore the stock price goes down to match the "expected" value of the company.

By DASQ on 7/21/2008 12:51:42 PM , Rating: 2
Well, it's just the market 'betting' that the company would do [X] well, and when you don't perform to expectations, you're cutting some people short.

Corporate pressure on the greed impetus *shrug*

By teckytech9 on 7/22/2008 12:11:28 AM , Rating: 2
It's up to a company to provide honest forecasts of future earnings to Wall Street. When future forecast numbers (i.e. the whisper) don't match expectations, the stock usually takes a hit. In this bear market, short sellers and other big institutions are driving the market prices. If the numbers don't live up to expectations, large sell orders are generated.

A company can see this as a good opportunity to repurchase their own shares at this low price, or revise forecasts at a later date with the introductions of new products or services. Also, being strapped with cash and making billions a year can certainly help weather any market turbulence regardless of what any analyst can forecast.

"Nowadays, security guys break the Mac every single day. Every single day, they come out with a total exploit, your machine can be taken over totally. I dare anybody to do that once a month on the Windows machine." -- Bill Gates

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