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Friday, October 19, 2012 1:56 AM

Problem is Demand: First IBM, then Intel, now Google

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Three technology bellwethers missed income or revenue expectations in the past few days. Let's take a quick look at IBM (IBM), Intel (INTC), and Google (GOOG).


TechCrunch reports IBM Q3 Earnings Mostly In Line With Expectations

IBM just released its Q3 2012 financials. Big Blue’s GAAP earnings came in at $3.8 billion, up 3% from the last quarter. Non-GAAP earnings were $4.2 billion. Overall, the company reported revenue of $24.7 billion, down from $25.8 billion in Q2.

Ahead of the earnings release, most analyst expected that Big Blue would report robust earnings. The consensus was that earnings per share would increase to around $3.62 (up from last quarter’s $3.51 non-GAAP EPS), but that overall revenue would decline to about $25.4 billion from $25.8 billion last quarter. With $24.7 billion, the company missed the analysts’ expectations.

On Thursday, Google accidentally posted incomplete earnings four hours early and its shares were halted following a huge plunge. Yahoo!Finance has the details in Google Shares Slammed! Company Misses Estimates in Premature Earnings Release.
Shares of Google (GOOG) are getting taken behind the woodshed this afternoon after the company's third quarter earnings results were released about four hours earlier than expected. In what is being called an "unfinished earnings release" Google reported earnings of $9.03 per share on revenues of $11.3 billion. The Street had been expecting EPS of $10.65 on revenues of $11.8 billion.

Shares fell immediately on the news, dropping nearly $70 within moments before to being halted at $687.39, down $68.10 or 9%. Google is blaming RR Donnelley (RRD), the owners of corporate reporting system EDGAR, for filing their 8K without authorization. Shares of RRD fell as much as 7% before recovering slightly.

Information thus far is limited. What can be seen immediately is that Google laid off a significant number of employees in its Motorola Mobility division, lost traction on the critical Cost per Click metric, and apparently failed to find a way to monetize mobile users. Net margins also fell sharply to 27% of revenues compared to 37% last year.

In September Intel warned third quarter revenue would be a billion dollars less than expected. That prior warning accounts for the New York Times headline on October 16: In a Slow Market, Intel Exceeds Lowered Expectations.
Intel crossed an earnings bar it lowered for itself last month, but the problems plaguing its main market for semiconductors — personal computers — seemed no closer to ending.

Intel, the world’s biggest maker of chips, is feeling pain from a global downturn in demand for personal computers.

“The problem is demand,” said Ken Dulaney, vice president at Gartner, a technology research firm. “People are buying other things with their disposable income for electronics, like tablets, televisions, smartphones, e-readers and gaming devices. Intel is trying to take its technology to these consumers, but this is a transition period.”
Problem is Demand

Yes indeed, the problem is demand, and also customers, jobs, part-time jobs, declining real wages, a fiscal cliff, Europe, China, a global recession, and shares priced well beyond perfection.

The only counterbalancing force is the Fed. Moreover, and in spite of what everyone seems to think, the Fed is not really in control of much of anything.

How much longer shares can defy gravity remains to be seen.

Mike "Mish" Shedlock

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