Market Summary ~ Google share jump after Dow falls 105
Google results beat Street estimates. Microsoft blames the recession as it announces 5,000 job cuts and lower than expected earnings. Intel will lay off 6,000 workers and close its last Silicon Valley plant. John Thain will leave Bank of America.
By Charley Blaine and Elizabeth Strott
An attempt to rally the stock market failed this afternoon after Microsoft (MSFT, news, msgs) announced 5,000 job cuts and an earnings miss.
At the close, the Dow Jones industrials were down 105 points, or 1.3%, to 8,112. The blue chips had been down as much as 271 points.
The Standard & Poor's 500 Index was off 13 points, or 1.5%, to 828, and the Nasdaq Composite Index was off 41 points, or 2.8%, to 1,465.
But Google shares were up 3.1% to $316.03 in after-hours trading after reporting better than expected earnings. The shares had closed up 1.1% to $306.50 in regular trading.
the company said revenue grew 21% to $2.22 billion from $3.48 billion a year ago.
Google earned $1.6 billion, or $5.10 a share, in the quarter. That was in line with Wall Street estimates. A year ago, it earned $4.92 a share or $1.56 billion.
Paid clicks were up 18% from a year ago and 10% over the third quarter.
The company has been cutting costs over the last six months. Gone was the glitzy Christmas party, for example. Google has also slowed its hiring.
Microsoft shares, meanwhile, were down 10.6% to $17.32 after the company said it would eliminate 1,400 jobs immediately and trim an additional 3,600 jobs over the next 18 months as a slumping economy and reduced spending on personal computers has cut demand for the company's software. (Microsoft is the publisher of MSN Money.)
The announcement had been rumored for weeks. It is further evidence of the recession’s increasing impact on the technology sector, which first appeared less susceptible to the weakened economy, outplacement firm Challenger, Gray & Christmas said today.
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While Microsoft's announcement cast an immediate pall on the markets, it was not the only factor dragging stocks lower. Continued turmoil at Bank of America (BAC, news, msgs) was pushing financial stocks lower. John Thain, who had merged Merrill Lynch with Bank of America, resigned today. His standing at Bank of America had declined after Merrill produced much larger than expected losses in the fourth quarter and several key executives quit.
Bank of America was down 11.8% to $5.89, second-worst among the 30 Dow stocks, after Citigroup (C, news, msgs), which was down 11.7% to $3.24.
In addition, energy stocks came back as crude oil recovered from its lows on the day. Crude was at $43.31 a barrel, down 24 cents from Wednesday, just before the close in New York. Crude had been as low as $40.41.
There was one bright spot in an otherwise unattractive market. Dow did briefly drop below 8,000 -- to 7,957 -- and immediately rebounded. The Dow has rebounded quickly after dropping 8,000 several times in the last few sessions. That is a signal of some buyer support.
Earnings pressures force Microsoft job cuts
Microsoft's job cuts came as it also announced second-quarter earnings that were below analyst estimates.
The layoffs are the first ever for Microsoft, which weathered the dot-com bust in the early part of the decade without major job cuts. Microsoft has about 96,000 employees.
CEO Steve Ballmer said the cuts will come in the company's research and development, marketing, sales, finance, legal and corporate affairs, human resources, and information technology departments.
Microsoft said the cuts will reduce operating costs by $1.5 billion.
The earnings report came out before the market open. That was a surprise; Microsoft had been scheduled to report after today's market close.
Microsoft said it earned $4.17 billion, or 47 cents per share -- down from $4.71 billion, or 50 cents per share, a year ago. The results missed Wall Street's estimate by 2 cents.
Revenue was up 1.6% from a year ago but missed the Wall Street estimate of $17.08 billion. But Microsoft was like many companies that saw business drop rapidly in the last three months of 2008. It had projected second-quarter revenue at $17.3 billion to $17.8 billion when it announced first quarter.
"Our financial position is solid. We have made long-term investments that continue to pay off," Ballmer said in an e-mail to employees today. "But it is also clear that we are not immune to the effects of the economy. Consumers and businesses have reined in spending, which is affecting PC shipments and IT expenditures."
Microsoft saw an 8.1% decline in revenue in its client business, to $3.98 billion from $4.33 billion a year ago. That group includes the various versions of Windows, its flagship operating system and related software.
About 80% of the revenue for the group comes from sales to computer makers. The sales decline reflects the weakening economy's effect on personal computer sales.
Elsewhere, Zune platform revenue decreased $100 million, or 54% -- reflecting a decrease in device sales.
The company did not give any profit or revenue forecasts for the rest of its fiscal year, which ends in June.
"It is pretty bad when things are deteriorating so fast that even the largest companies in the world don't know how rapidly it is happening," said Jefferies analyst Katherine
Egbert.
Internet search company Google (GOOG, news, msgs) reports after the close.
Intel to close four facilities, cut up to 6,000 jobs
Late Wednesday, Intel (INTC, news, msgs) said it would close manufacturing plants in Malaysia and the Philippines, as well as its only remaining factory in Silicon Valley, cutting as many as 6,000 jobs.
Shares were down 4.9% to $12.61 this afternoon.
The announcement comes a day after the world's largest maker of microprocessors used in personal computers slashed prices on a number of its chips and a week after it reported a decline in fourth-quarter revenue.
Intel said it would close two assembly test facilities in Penang, Malaysia, and one in Cavite, Philippines.
It will also halt production at a wafer fabrication facility in Hillsboro, Ore., as well as its facility in Santa Clara, Calif., -- a factory connected to its headquarters and the only Intel manufacturing facility left in Silicon Valley.
Intel ended 2008 with around 84,000 employees.
Strong product sales at Apple
Microsoft's news overshadowed a strong quarterly report from Apple (AAPL, news, msgs) late Wednesday.
Apple earned $1.61 billion, or $1.78 per share, for the fiscal first quarter -- up from $1.58 billion, or $1.76 per share, in the same period a year ago. Analysts had been looking for earnings of $1.40 per share.
Sales rose nearly 6% to $10.2 billion, also topping Wall Street's estimate of $9.74 billion.
Apple stock jumped 7.3% to $88.92.
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Apple sold 2.5 million Macintosh computers, up from 2.3 million a year ago; iPod sales rose nearly 3% to 22.7 million.
Sales of the iPhone device were very strong, jumping 91% to 4.4 million units.
"They sell a premium product, and if this is truly one of the worst economic backdrops since the Great Depression, this is a huge triumph," Jim Grossman, an analyst at Thrivent Asset Management, told Bloomberg News.
Apple said it expects to earn 90 cents to $1 per share for the current quarter, which ends in March. The forecast is typically modest for Apple, which tends to be conservative with its guidance; analysts are expecting $1.13 per share.
Apple also said revenue will come in at $7 billion for the current quarter.
Apple shares had been hit hard after Chief Executive Officer Steve Jobs last week said he would be taking several months off to focus on his health. The company did not give any information about Jobs' health.
The company is under SEC scrutiny for its disclosures about Jobs' health. Just a week before Jobs announced that he was taking a leave of absence, he had said he had a treatable "hormonal imbalance."
More economic data released
Data on jobless claims and housing starts added more gloom to the economic outlook today.
First-time claims for unemployment benefits for the week ending Jan. 17 rose by 62,000 to 589,000 -- more than economists had forecast and matching a 26-year high.
Last week's number was the same as the one for the week ending Dec. 20, which hit the highest level since November 1982.
"Job losses will continue through the first part of the year and could extend all the way through 2009," Ellen Zentner, a senior U.S. economist at Bank of Tokyo-Mitsubishi, told Bloomberg News.
Housing starts plunged 15.5% in December to a seasonally adjusted 550,000, a record low, the Commerce Department reported this morning.
Starts have plummeted 49% since June.
Building permits fell 12.3% to a record low of 363,000 last month. Home building stocks moved lower. Pulte Homes (PHM, news, msgs) was off 1.7% to $10.42.
Few bidders dim eBay's outlook
Things at online auction site eBay (EBAY, news, msgs) were not great in the most recent quarter.
The company late Wednesday said fourth-quarter net income fell 30% to $367 million, or 29 cents per share, down from $531 million, or 39 cents per share, in the same quarter a year ago. Excluding charges, eBay earned 41 cents, 2 cents ahead of the consensus estimate.
Revenue fell 7% to $2.04 billion, missing the consensus estimate of $2.11 billion. Sales in eBay's core business, its auction sites, fell 16%, a blow to the company because that business makes up two-thirds of its revenue.
But revenue from eBay's Skype Internet phone business was up 26% to $145 million. Skype added 35 million users in the quarter, bringing total users to more than 405 million.
Shares fell $1.65, or 12.4%, to $11.63 in midday trading.
The company gave a weak forecast for the current quarter, citing the pullback in consumer spending. The company expects earnings between 32 cents and 34 cents per share. Analysts are looking for 40 cents per share for the current quarter.
Bank CEOs buy up cheap shares
Badly battered financial stocks helped spark Wednesday's rally.
The CEOs of several top financial companies decided that their stocks were too cheap to pass up and made big purchases.
Bank of America CEO Ken Lewis bought a total of 200,000 common shares, paying between $5.98 and $6.06 per share.
Several other top executives bought a combined total of 300,000 shares, according to a regulatory filing.
JPMorgan Chase's (JPM, news, msgs) Jamie Dimon purchased 500,000 common shares at $22.92 last Friday.
Meanwhile, Citigroup (C, news, msgs) late Wednesday said that Richard Parsons, former CEO of Time Warner (TWX, news, msgs), will become chairman of the financial services giant.
Parsons, who was already chairman of the bank's Nomination and Governance Committee, will replace Sir Win Bischoff, who is retiring.
Recession weighs on . . . Google
Star tech performer, Google (GOOG, news, msgs), is expected to see its wings clipped when it announces fourth-quarter results after the bell today.
Analysts expect Google to earn $4.96 per share on revenue of $4.12 billion, with both earnings and revenue down substantially from the previous year.
Google shares were down $3.33, or 1.1%, at $299.75 today.
Google makes much of its revenue from paid search advertising: When a viewer queries the search engine, sponsored links come up along with the regular ones, and viewers can click on them. The cost per click, or price an advertiser pays for keywords, is determined by an automated auction.
There are reports that users haven't been clicking on the sponsored links as much during the recession. Add to this that online advertising has gone way down for all Internet companies, and it's clear why the outlook for Google revenues isn't good.
Nokia profit plunges
Cell phone maker Nokia (NOK, news, msgs) reported fourth-quarter profit down 69% from the previous year. Earnings were 34 cents per share on revenue of $16.5 billion. Both results were well below analyst estimates.
The stock fell 12.3% to $12.02 this afternoon.
The company now expects 2009 mobile device sales to fall around 10% from 2008 levels.
Handsets sales are under pressure, forcing Nokia to drastically reduce prices on its phones, squeezing margins as a result. Ironically, the company has seen its market share rise, but increased competition from Apple's iPhone is cutting into its penetration
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