The first week of this earnings season totally brutalized the tech sector.
- Microsoft (NASDAQ: MSFT) shares fell 1.9% over those five days. First-quarter earnings were kind of micro on soft sales.
- Intel (NASDAQ: INTC) dropped 1%, shielded from the market's fury by a gloomy mid-quarter update. Investors already knew it wouldn't be good, so the overnight drop didn't look all that terrible.
- Rival Advanced Micro Devices (NYSE: AMD) wasn't so lucky: Yes, the underdog also tried to soften the blow by releasing soft sales numbers early, but it didn't matter in the end. Shares plunged 20% by Friday night as the company revealed how hopeless its situation really is.
- IBM (NYSE: IBM) added some enterprise-class pessimism to the otherwise consumer-based anguish. Big Blue had to choose between boosting its top-line sales or protecting profit margins. I think IBM made the correct choice in sticking to its pricing policy guns, but Wall Street panicked over falling revenue. The stock plunged 4% overnight and 7% from Monday morning to Friday night.
- Even Google (NASDAQ: GOOG) took it on the chin, falling 8.4% after unveiling weak revenue per click. The stock was even halted for three hours because a data management partner released the bad news too early.
- All told, the tech-heavy Nasdaq Composite (INDEX: ^IXIC) index lost 1.3% -- far behind the mild gains posted by the S&P 500 (INDEX: ^GSPC) and Dow Jones Industrial Average (INDEX: ^DJI). That's a rather unambiguous sign that the tech sector is suffering from some ailment that isn't reaching into other markets.
- But that was then, and this is now. A number of tech heavyweights are still warming up for their turns in the earnings spotlight. Will this batch continue down the same sad road, or were those early warning shots the biggest scare tech investors will see this season?
Monday's action didn't provide many clues. Microchip giant Texas Instruments (NASDAQ: TXN) edged past analyst estimates for the third quarter, but the fourth-quarter outlook was less than rosy. The stock traded down after the report.
On the other hand, Yahoo! (NASDAQ: YHOO) jumped 3% thanks to a strong performance. New CEO Marissa Mayer is off to a great start, beating Wall Street's earnings targets by 35%. Mayer said she's open to share buybacks because Yahoo!'s shares look so darn cheap.
Meanwhile, hard-drive maker Western Digital (NASDAQ:WDC) jumped 4% on fantastic first-quarter sales -- then dropped to a net 5% swoon when second-quarter guidance was revealed. The company is only one year removed from a flooding disaster in Thailand that decimated manufacturing lines for the entire hard-drive industry, making it difficult for the drive builders to meet customer demand. Now Western Digital complains that demand is too weak.
Take Western Digital's stunning reversal of fortunes, pair it with the PC chip builders' weak numbers, and I don't think laptops will be popular holiday gifts this year. Is this the much-vaunted death of the PC or just a temporary setback? Only time will truly tell, but remember that we asked the same question in 2011, and in 2010, and 2009, and... Well, those rumors have been greatly exaggerated so far.
And that brings us to the present time, looking into the future. And there's a whole lot of future making the rounds this week. Too much, in fact, to give you a complete list here, but here's a sample of the biggest names in the bullpen:
- The dynamic duo of storage specialist EMC (NYSE:EMC) and its majority-owned virtual computing unit VMware (NYSE: VMW) step up on Wednesday morning and Tuesday night, respectively. Together, they will fill in the blanks in IBM's picture of the large-scale computing market.
- Also before Wednesday's opening bell, Level 3 Communications (NYSE:LVLT) gives the most focused report on data networking you'll see all season. Do keep in mind that Level 3 has operated in an eternal turnaround mode since time immemorial, so don't expect too much in terms of profit or revenue growth. But management will discuss the global demand for data services with candor, and that's always worth a listen.
- Facebook (NASDAQ:FB) drops by with its second report as a public company. Did Google's dropping ad rates bleed over into Facebook's corner of the Web, or is Mark Zuckerberg running in the opposite direction? Here's where we'll find out.
- And then there's the big dog. Apple (NASDAQ:AAPL) tees up for a round of financial golf on Thursday night, and this quarter may not be the usual slam-dunk success. The press seems more interested in discussing Tuesday's long-awaited release of a smaller iPad (nee, larger iPod Touch) than in the impending earnings report.
These key reports will set the tone for the tech industry over the next three months. It's the last hurrah before holiday shopping and year-end corporate budget flushes start, and you really need to pay attention.