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Earnings Reports Show Scant Signs of IT Slowdown

There is no sign of an IT recession in the latest quarterly reports from some of the biggest names in the industry. But it's an open question whether Google is dealing with the early stages of an advertising slowdown that could get worse before it gets better.

Both IBM and Microsoft reported stellar results with IBM reporting second quarter profits that beat analyst estimates by jumping 22 percent. IBM even raised its earnings outlook for 2008 by 25 cents per share over earlier estimates saying it expected to early about $8.75 per share for the year.

My colleague Joe Wilcox reported on Microsoft Watch that the world's largest software company hit the 60 mark-$60 billion in revenue--a good seven years by before its founder and now-retired chairman Bill Gates. Fourth quarter revenue totaled $5.68 billion, slightly above the $15.5 to $15.8 billion Microsoft had forecast back in April.

Even Google reported results that would make most CEOs proud. It produced $5.37 billion in sales and a $1.25 billion profit. But Google disappointed Wall Street analysts with earnings that came in at $4.63 per share, below consensus estimates of $4.72 per share.

But for market watchers the most ominous metric was the report that paid clicks for ads served on Google Sites and on AdSense partner sites declined by 1 percent. That may not seem like much, but it's sure to keep Google execs and market analysts fretting for the next quarter about whether this is the start of a lengthy online ad slowdown caused by the persistent worries about recession and inflation in the United States.

But it also raises concerns about whether Google will soon return to the explosive advertising and sales growth that allowed the stock to top 700 in November 2007 and has kept the stock one of the most expensive on the Nasdaq market.

Google is facing more competition that ever. Microsoft is ready to spend as much money as necessary to buy a larger piece of the world's online advertising market. Both Google and Microsoft are trying to form alliances and build the technology that will determine who gets to be king of the advertising mountain.

Google executives are going to get a chance to demonstrate just how gifted they are as hard-nosed business managers. One misstep in this wrestling match and it will be a long slippery fall to the bottom of the mountain.

Even the problem child of the July 17 earnings reports, Advanced Micro Devices, can't blame its problems on a recession. AMD's swash buckling CEO Hector Ruiz finally took the fall for the ill-advised ATI Technologies acquisition in 2006 that has poisoned the company's earnings for the past two years. Ruiz disclosed he is stepping as CEO in favor of AMD president Dirk Meyer, but he will remain executive chairman of the board.

The acquisition of ATI, a producer of graphics chips, video display cards, motherboard chipsets and other consumer electronics, may have seemed like a good idea at the time. AMD wanted to acquire the company graphics technologies so it would have a leg up on efforts to start building graphics processing right into their CPU chips.

But the sad record of this acquisition demonstrates once again that when making a huge corporate acquisition, every company has to have an integration plan that ensures that the new property is quickly producing positive earnings for the parent company.

Now AMD says it plans to sell off the consumer electronics division it acquired with ATI and hope it can find ways to make the surviving operations profitable for AMD.

John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...