Windows 7 Microsoft, Amazon.com Fall After Missing

Bloomberg
Microsoft, Amazon.com Fall Soon after Missing Forecasts (Update3) April 23, 2010, four:10 PM EDT
(Updates shares in fifth paragraph.)
By Dina Bass and Joseph Galante
April 23 (Bloomberg) -- Microsoft Corp. and Amazon.com Inc. fell right after releasing earnings studies that showed a rebound in technological innovation paying by firms and on the web buying by buyers is a lot less robust than analysts had predicted.
Microsoft, the world’s largest software maker, said third- quarter sales rose 6.3 percent to $14.5 billion, lacking the most optimistic revenue estimates. Amazon.com, the biggest on-line retailer, said operating income this quarter may be as low as $220 million,Microsoft Office 2010 Key, compared with $322.2 million, the average prediction of analysts surveyed by Bloomberg.
While Microsoft and Amazon.com had rising sales and profit last quarter, neither lived up to analysts’ most bullish predictions. Optimism rose last week after Intel Corp. forecast record profit margins in 2010, indicating that a revival in computer demand is gathering steam. Results from Apple Inc. and Best Buy Co. this week reflected robust consumer purchasing.
“With technology in general and Microsoft in particular, you’re going to get this issue where it’s not good enough or it’s already in the stock and it sells off a little bit,” said Dave Stepherson, a fund manager at Hardesty Capital Management in Baltimore. Hardesty manages $700 million in assets, including Microsoft shares. “You’ve had a lot of momentum in technology stocks.”
Shares Decline
Microsoft, based in Redmond, Washington, fell 43 cents to $30.96 at four p.m. New York time in Nasdaq Stock Market trading. Amazon.com,Windows 7 Professional Product Key, based in Seattle, dropped $6.46, or four.3 percent, to $143.63, the biggest decline since Feb. 1.
Third-quarter net income at Microsoft rose 35 percent to $4.01 billion,Office 2010 Professional Plus Key, or 45 cents a share, beating the average forecast of 42 cents in a Bloomberg survey of analysts. Sales exceeded the $14.4 billion average in the survey, reflecting rising demand for Windows 7, the latest version of Microsoft’s flagship operating system.
Still, investors were expecting more, Stepherson said. For the second straight quarter, much of Microsoft’s strength came from customers, while business paying hasn’t rebounded with vigor. Sales of Office and server software missed estimates at Goldman Sachs Group Inc. and UBS AG.
Unearned revenue, a measure of multiyear contracts, was $12.3 billion. Analysts’ average estimate was $12.8 billion, according to Katherine Egbert, an analyst at Jefferies & Co.
The numbers suggest corporate customers are holding off on big orders that stretch over many years.
‘Really Poor’
“The deferred revenue was really poor,” said Brent Thill, an analyst with UBS AG in San Francisco. “Microsoft is one of the last organizations in engineering to say enterprise paying is turning. Everyone thought they’d put up better growth.”
Amazon.com said operating income will be $220 million to $320 million, below the average estimate in the Bloomberg survey. The company is struggling to extract favorable pricing from its suppliers who, with improving demand, don’t have to offer as many discounts, said Colin Gillis, an analyst at BGC Financial LP in New York.
As more shoppers snap up digital books and other media -- getting fewer of the physical products that have long been Amazon.com’s mainstay -- the company faces increased competition from rivals such as Apple, Gillis said.
“Amazon is not likely to experience the same profitability and leadership position in digital media that it enjoys selling physical books,Windows 7 Starter Key, movies and music,” Gillis said.
Earlier Gains
First-quarter sales of $7.13 billion and profit of $299 million, or 66 cents a share, beat analysts’ estimates. The company’s shares have climbed 90 percent in the past year, double the gain by the Standard & Poor’s 500 Index.
Amazon.com and Microsoft are not the only businesses whose quarterly earnings reports compared poorly to those of Intel and Apple. Google Inc., the biggest seller of Internet advertising,Cheap Office 2010, posted its biggest drop since December 2008 last week following reporting profit that missed the highest analyst estimates. “The leading Internet stocks so far all reported fairly good results and guidance and still saw their stocks drop,” said Fred Moran, an analyst at Benchmark Co. in Boca Raton, Florida. “The stock market expectations for where technologies stocks should trade may have temporarily gotten ahead of themselves.”
--With assistance from Rochelle Garner in San Francisco and Ragnhild Kjetland in Frankfurt. Editors: Tom Giles, Nick Turner.
To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net