Apple sales seen showing mobile shift lifting tech companies

October 28, 2013 06:16 AM

Apple Inc. (NASDAQ:AAPL) and Facebook Inc. (NASDAQ:FB) will report quarterly earnings this week that underscore the technology industry’s division into two camps: providers that are adapting to shifting mobile and Web tastes, and those that have lagged behind.

Apple later today is predicted to report a rise in iPhone sales after last month’s release of new models, while Facebook follows on Oct. 30 with some analysts projecting a bigger chunk of its revenue to come from mobile advertising.

Google Inc., Inc. and Samsung Electronics Co. -- companies that have helped pioneer mobile and Internet-based services -- have released results that have surpassed estimates in the past two weeks. By contrast, those struggling to adapt to the changes have reported earnings that disappointed investors. They include International Business Machines Corp., Yahoo! Inc., and security-software company Symantec Corp.

“Many of the old-guard companies are being displaced and the companies that are at the advent of these forces are becoming dominant,” said Van Baker, director of research at Gartner Inc.

Microsoft Corp.’s results last week show that the divide between haves and have-nots can exist within the same company. The Redmond, Washington-based software maker made up for the shortcomings in its consumer personal-computer business with better-than-predicted numbers for corporate programs like Internet telephone and messaging software, and by more than doubling sales from business cloud services like online versions of Office and the Azure service for hosting applications on the Web.

Diverging Trends

Investors are rewarding the companies disrupting their industries and leading the new trends. Google surpassed $1,000 a share for the first time after reporting results, and Amazon also jumped 9.4% a day after posting its earnings. The stocks, up 44% and 45% respectively this year, have outpaced the 23% gain in the S&P 500 Index. IBM declined 7.7% in the same period.

“The new tech companies like Google and Amazon did well, while companies that rely on old tech, like IBM, didn’t,” said Daniel Morgan, a fund manager at Synovus Trust Co. in Atlanta, which owns Microsoft shares.

The popularity of smartphones, tablets and tools that let people to work, shop or watch videos from anywhere with an Internet connection has upended a technology industry that long profited from a model of selling PCs and accompanying software.

Apple Leads

That divergence is reflected in technology-spending forecasts. Market-research firm IDC predicts PC shipments will fall almost 10% this year worldwide. By contrast, mobile- phone shipments are projected to increase by 7.3% in the same period, fueled by demand for smartphones, with tablet unit sales growing an estimated 59%, IDC said in August.

Much of the disruption has been led by Apple, whose co- founder Steve Jobs coined this the “post PC” era. Analysts including Katy Huberty of Morgan Stanley have predicted the Cupertino, California-based company will today report better- than-anticipated fiscal fourth quarter results, especially after the release of the iPhone 5s and 5c last month. Apple is projected to have sold 33 million iPhones in the quarter, compared with 26.9 million a year earlier, according to data compiled by Bloomberg.

Apple’s profit for the quarter will be $7.21 billion, or $7.92 a share, on sales of $36.8 billion, according to analyst predictions compiled by Bloomberg. Absent new products for much of the period, the company’s profit is expected to fall for a third consecutive quarter.

Holiday Shopping

Investors will be looking for a glimpse of how Apple expects to perform during the holiday shopping season. Huberty said iPhone sales could hit 55 million in the current quarter, up from 47.8 million a year earlier.

Apple, down 1.2% this year before today, is trading at 13 times its estimated earnings this year, compared with a 16 times average for peers, according to data compiled with Bloomberg. The shares were little changed at $526.20 at 10:06 a.m. in New York.

Facebook, meanwhile, has shown an improved ability to make money advertising to the hundreds of millions of users who access the social network via smartphones and tablets, ameliorating earlier fears that it couldn’t successfully navigate the mobile shift. The progress was reflected in the stock, which has soared 95% this year.

Facebook’s Profit

Third-quarter profit excluding some items will jump 47% to $455.8 million, according to analyst projections compiled by Bloomberg. Sales for the Menlo Park, California- based company will rise 51% to a record $1.91 billion. Facebook shares fell 2.1% to $50.85.

Kristin Huguet, a spokeswoman for Apple, declined to comment, as did Tucker Bounds, a spokesman for Facebook.

Apple and Facebook are reporting after record third-quarter results from Samsung, the world’s biggest maker of mobile phones. Google also posted better-than-anticipated third-quarter results, benefiting from an increase in the volume of mobile advertising. Amazon last week reported that quarterly revenue grew 24% to $17.1 billion as the company invests in new warehouses, speedier delivery, and a growing data-center business that is used by other companies.

“We have the potential to really improve people’s experience as they move more onto mobile and spend more time there,” Google Chief Executive Officer Larry Page said on a call with Wall Street analysts on Oct. 17.

Intel’s Forecast

Other technology companies are still struggling, especially given it’s unclear if they can tackle the shifts.

Intel Corp.’s results exemplify the benefits and perils of the switch to mobile and Internet-based cloud services. Earlier this month, the Santa Clara, California-based company reported third-quarter revenue and profit that was little changed from a year earlier and its fourth-quarter revenue forecast fell short of some analysts’ predictions.

While Intel has less than 1% share in smartphone processors, the company still benefits from their popularity because it supplies the main component in nine out of every 10 of the server machines that supply them with data and services.

IBM, Symantec

IBM, the largest computer-services provider, said Oct. 16 that sales fell for the sixth straight quarter amid weak demand for its servers and other computer hardware. Companies are turning to software and services delivered over the Internet instead of buying from IBM.

Symantec, whose security software is used on many PCs, dropped the most in four years last week after its forecast fell short of analysts’ estimates. The company is struggling to adapt its business model to a marketplace that’s shifting to mobile and to specialized anti-hacking technologies for corporations, said Daniel Ives, an analyst at FBR Capital Markets & Co.

“We have a bit of a hole to dig out of here,” said Symantec CEO Steve Bennett.

The shift to mobile devices from traditional desktop computers also is disrupting Internet companies that rely on promotions. The mobile-ad market is projected to expand 89% this year compared with 13% for the total market, according to EMarketer Inc.

While Google and Facebook are benefiting from marketers trying to reach people on their mobile phones, Yahoo hasn’t fared as well. It forecast fourth-quarter revenue excluding sales passed on to partners that may fall short of analysts’ expectations.

Online retailer EBay Inc. wasn’t immune either. The world’s largest online marketplace reported sales and profit forecasts that missed analysts estimates as online shopping on its site slowed.

“These are forces that are fundamentally changing the market,” said Baker of Gartner.

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