Global Recession Takes Bite Out of IT Profits

Falling sales and profits have started hitting the IT industry, which many observers had hoped would prove resistant to the effects of the global recession. However, even companies with long track records of profit and employment growth-such as Microsoft, Nokia, Sony Ericsson and Samsung-issued quarterly reports showing the recession had caught up with them.

The global technology sector, which most analysts and industry observers believed would be be relatively resistant to recessionary forces, has officially joined the glut of industries in starting mass layoffs after disclosing sinking sales and profits.
Tens of thousands of lost jobs were hitting people and companies where it hurts this week. Microsoft announced it would cut 5,000 employees; Google has begun trimming some 10,000 contracting employees; Intel said it would close factories that would affect 5,000 to 6,000 jobs; and telecom giant Ericsson said it will lay off 5,000 people.

Sun Microsystems began dismissing 1,300 of the 5,000 to 6,000 employees it said last November would have to go. Even little said it would have to lay off seven of its 75 employees.

Longtime successful companies such as Nokia, Sony Ericsson and Samsung-which rarely, if ever, have posted losses-had to admit financial defeat this quarter. Times are literally tough all over, and analysts believe they're going to stay that way for a long while.
Here's a roundup of eWEEK financial report coverage from the past five business days.
IBM Net Income Up 12 percent
IBM started off the week well on Jan. 20, announcing a 12 percent increase in net income to $4.4 billion, up from $4 billion in the same period (Q4) a year ago. Revenues from the software segment were $6.4 billion, an increase of 3 percent. Revenues from IBM's middleware products, which are primarily WebSphere, Information Management, Tivoli, Lotus and Rational products, were $5.2 billion, up 4 percent from the fourth quarter of 2007.
Eugene Zakharov, senior analyst of Professional Services for Technology Business Research, said, "IBM is clearly a fundamentally different company compared to several years ago: The company has successfully steered away from cyclical and commoditized products, the company focused on software and services. Roughly 90 percent of IBM's profit comes from software, services and financial services, all of which proved to be resilient and attractive in this downturn.
"IBM really likes its hand and the company is upbeat about its opportunities in 2009 and its ability to continue performing well even in light of continuing pressures on IBM's top line," Zakharov said.
Google Sales Up 18 Percent YOY in Q4
Despite the spending dearth of the recession and reports that search advertising spending is down, Google on Jan. 22 reported net income of $382 million on earnings per share of $1.21 for the fourth quarter of 2008.
While this profit figure was down a whopping 68 percent from the $1.29 billion recorded in Q3, Google also beat expectations, reporting fourth-quarter EPS of $5.10 compared with $4.92 in the third quarter of 2008. Analysts polled by Thompson Reuters were expecting Google to rake in $4.95 per share.
The search giant, which trimmed several Web services programs Jan. 14 to save money and resources, reported sales of $5.70 billion for the quarter, an increase of 18 percent from the fourth quarter of 2007 and a modest 3 percent increase from the third quarter of 2008.
Apple Rides iPhone, iPods to Record Results
Apple announced record results for its fiscal first quarter on Jan. 21. Quarterly revenue reached $10.17 billion, up from $9.6 billion a year earlier. Net profit jumped from $1.58 billion a year earlier to $1.61 billion, or $1.76 and $1.78 earnings per share, respectively. Gross margins were 34.7 percent.
In October, Apple forecast for fiscal first quarter: $9 billion to $10 billion in revenue and between $1.06 and $1.35 earnings per share. Apple expected gross margins to decline to 30 to 31 percent, in part because of new iPods and notebooks. Clearly, Apple blew past its own guidance.
Microsoft Profitable, but Not Sure About 2009
Microsoft posted quarterly results that missed Wall Street expectations, announced it would cut up to 5,000 jobs and said it could no longer offer profit forecasts for the rest of the fiscal year.
Microsoft posted a profit of $4.17 billion, or 47 cents per share, in its fiscal second quarter ended Dec. 31, versus a profit of $4.71 billion, or 50 cents, a year earlier. Analysts were looking for earnings per share of 49 cents, according to Reuters Estimates. Revenue rose 2 percent to $16.63 billion, missing the average analyst forecast of $17.1 billion.
Nokia Misses Forecasts, Sees Weaker 2009
Finland-based Nokia, the world's largest cell phone and handset maker, reported worse-than-expected fourth quarter results on Jan. 22 and warned that the entire handset market would suffer this year due to less consumer spending. Nokia shares slid more than 8 percent to their lowest level since mid-2004 on Jan. 22.
Samsung Posts First Quarterly Loss
South Korea's Samsung Electronics posted its first ever quarterly loss on Jan. 23, joining a host of technology companies including Microsoft and Nokia suffering from diving prices and slumping demand.
Samsung, the world's top maker of memory chips and LCD screens, posted a fourth quarter operating loss of 937 billion won ($682 million), more than double the loss analysts polled by Reuters had expected.
"Samsung will likely bleed more, if not suffer wider losses, as the global economy is expected to slump further well into the first half of this year," said Lee Jeong, an analyst at Hana Daetoo Securities.
AMD Reports Quarterly Loss of $1.42B
Advanced Micro Devices reported another quarterly loss Jan. 22 in its struggle to return to profitability in the x86 processor and graphics markets. For the 2008 financial fourth quarter, AMD reported a net loss of $1.42 billion, or $2.34 a share. AMD recorded revenue during the quarter of $1.162 billion. In the fourth quarter of 2007, AMD reported a loss of $1.77 billion or $3.06 a share.
AMD is dealing with a global economy that has seen both consumers and business buyers severely cut back on their purchases of desktops and notebooks.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...