It's been quite an exciting week for tech investors. We've had earnings aplenty, but several Silicon Valley stalwarts have also shocked the Street with huge moves that had little to do with the quarterly income statement. Let's dig into the past week's biggest stories to figure out what we can learn -- and whether we can profit over the long term.
Mr. Softy could soon have a new hand on the wheel
After 14 years, much-maligned Microsoft (NASDAQ:MSFT) CEO Steve Ballmer is finally stepping down. The long search to replace Ballmer is now widely rumored to be at an end, and Microsoft will purportedly tap cloud-services exec Satya Nadella as its next leader.
Nadella is certainly a dark horse in a race that once had Ford CEO Alan Mullaly in the lead, with former Nokia CEO Stephen Elop -- now a Microsoft exec following Redmond's acquisition of the Finnish company's mobile segment -- a close second. Also surprising was the rumor that Microsoft founder Bill Gates might be ousted as chairman of the board, despite remaining the company's single largest individual shareholder.
We should find out more about the big Microsoft shakeup in February. It might take several years longer to find out if the company's choices are the right ones.
Lenovo wants all the hardware
Last week, Lenovo agreed to buy IBM's struggling low-end server business for $2.3 billion. On Wednesday, the Chinese PC giant also closed a deal with Google (NASDAQ:GOOGL) to buy Motorola Mobility for $2.9 billion. These two deals reveal the ongoing difficulty for American tech companies have in making hardware profitably, and also further cement the shift in high-tech manufacturing from West to East.
IBM has little reason to remain in server hardware, particularly given the fact that many small and midsize businesses that might otherwise need servers can now host their operations in the cloud, and this divestiture is actually the second time Lenovo's picked up a cash-bleeding IBM hardware division. The company moved into computer manufacturing in a big way when it bought IBM's PC division in 2004 and is today the world's largest PC vendor . Since IBM was the world's largest server vendor in 2013, Lenovo is likely to take that crown as well. However, Lenovo already operates with razor-thin margins -- its profit margin for the past six months was just 2% -- so it will have to work hard to keep costs low as it integrates IBM's server segment into its own operations.
Google's decision to divest its Motorola mobile division was quickly picked apart as a big loss for the search giant, which spent $12.4 billion to pick it up less than two years ago. However, Google retains virtually all of the roughly 20,000 patents Motorola brought with it, and the Motorola purchase also added $2.9 billion in cash to Google's coffers.
Fool contributor Tim Brugger has a detailed breakdown on the Motorola sale (click here to read it), and his conclusion is that Google didn't do quite as badly as many quick recaps have claimed. Lenovo was already a much larger smartphone maker than Motorola, with nearly 13 million phones sold worldwide in the third quarter compared to Motorola's four million , so this deal simply gives the Chinese company a bit more global diversity as it works to penetrate global mobile markets. Google's retention of the Motorola patent trove, and Motorola's research division, could make this a much better long-term deal for the search giant as the royalties roll in.
Most important was the revelation that over half (53% to be exact) of Facebook's ad revenue now comes from mobile, and since three-quarters of the social network's user base is now on mobile, there's apparently quite a bit more growth left. However, now that Facebook's worth $150 billion, investors should also ask whether the company can justify its high valuation premium over other stocks its size.
Want to get all the details? Click here for the full earnings breakdown.
The rise of the East on Yahoo!'s bottom line
Yahoo! (NASDAQ:YHOO) also reported earnings this week, and investors had the opposite reaction toward its results than they did toward Facebook's. Yahoo! has yet to prove that it can become a growth company again, as revenue has been slowly but surely falling for the past two years. However, the dividends from Yahoo!'s investments in Yahoo! Japan and Alibaba accounted for almost two-thirds of its entire net income this quarter, which means that Yahoo! is no longer really an American tech company, but a holding company for Asian tech ventures. Alibaba could go public this year, which would bring another windfall for Yahoo!, but since the Chinese e-commerce leader is now so vital to Yahoo!'s bottom line, it seems unlikely that we'll see it divested any time soon.
Want to get all the details? Click here for the full earnings breakdown.
Opening a Box for cloud-storage investors
Give credit to Fool contributor Alex Dumortier for calling this one -- cloud-storage specialist Box filed undisclosed papers for an initial public offering this year . Thanks to the poorly named JOBS Act, companies with less than $1 billion in annual revenue no longer have to make public their S-1 prospectuses before readying for the IPO, but that doesn't mean leaks won't publicize major IPOs anyway. Box and its similarly named rival Dropbox have been on the vanguard of cloud-storage technology, which allows users to maintain their documents in a central online location for easy access. Box was recently valued at $10 billion, so it's bound to be one of the biggest IPOs of 2014.
Since when do we care about profits?
Amazon (NASDAQ:AMZN) was another major tech company to report earnings this week, and investors were disappointed when the e-commerce giant missed both Wall Street's top- and bottom-line projections.
While Amazon did report a decent profit (for Amazon, anyway), it wasn't enough for a market used to torrential growth from the multibillion-dollar retailer. As a result of its disappointing quarter, Amazon is now contemplating a price hike in the beloved but loss-leading Prime annual membership, which one analyst estimates causes anywhere from $1 billion to $2 billion in losses each year. Amazon only earned $274 million in 2013 , so you can see why the company might want to exercise a little pricing power on its two-day shipping service.
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