Money before innovation: Why Wall Street loves tech giants these days

The giants are back. The classic tech companies that make computers, hard drives, and productivity software are soaring on Wall Street. Meanwhile, that other tech giant, Apple, derided by the digerati for not blowing their impressionable minds recently, is kicking butt on the Street.

Interestingly, none of those stars have done anything terrifically exciting or innovative recently. What they’ve done is deliver the steak (dollars) investors are looking for, but without the sizzle the blogosphere loves (cool innovations).

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Apple and Microsoft, of course, both served up solid, if unexciting, financial results on Tuesday. But there’s also Oracle and troubled Hewlett-Packard, which finally has a permanent chairman (chairwoman, actually), along with Western Digital and, believe it or not, Xerox.

A check of the charts shows that all six companies have done astonishingly well in the market in the last 12 months, adding anywhere from 20 to 40 percent to their share values, generally exceeding the overall rise of the tech-heavy Nasdaq index.

There’s the other factor that two of those companies have in common: plans for massive layoffs that could well total 24,000 people by the time HP’s Meg Whitman and Microsoft’s Satya Nadella are done. You can never shed too much blood for Wall Street.

Apple’s and Microsoft’s cash machine spit out profits ever faster Apple CEO Tim Cook, a man whose predecessor was the hardest act in business to follow, gets endless grief for not producing a spectacular new product every other quarter. That criticism may or may not be justified (let’s see what happens this fall), but his company’s recent quarter shows that the Apple cash machine is revving ever faster.

Its revenue was up 6 percent from a year ago, to $37.4 billion, while earnings per share, bolstered by share buybacks, soared 20 percent. Gross margins, a key indicator for investors, grew strongly to 39.4 percent from 36.9 percent a year earlier.

Last week, I wrote about the comeback of the PC. I focused on Windows PCs, but sales of Macs are soaring as well. Sales of Macs were up 18 percent, with 4.4 million sold. Indeed, revenue from Apple’s computer sales wasn’t far behind that of its iPad sales: $5.54 billion and $5.88 billion, respectively, a very healthy serving of steak.

Despite all the moaning about the “boring” iPhone, sales of that high-margin device were extraordinary: up 9 percent to $19.7 billion. Yes, iPad sales were disappointing, but tablet sales are slowing for everyone, says IDC, and that includes archrival Samsung.

Microsoft hasn’t done anything that excites the digerati these days, and it’s paying through the nose for Steve Ballmer’s ill-conceived purchase of Nokia. Even so, sales in the quarter were huge: $23.38 billion, compared to $19.9 billion a year ago, with about $2 billion of the gain attributed to sales of Nokia products. But costs from the Nokia acquisition pushed down the company’s profits by about 4 cents a share, or $360 million.

Still, those are not bad results. If anything really stands out, it’s Microsoft’s revenue from cloud services, which is up by about 150 percent to an annual run rate of more than $4.4 billion.

The takeaways from both companies are pretty obvious: Both are doing a very good job at managing their business, and both are delivering very solid results that investors love. Of course, neither CEO has yet to prove that he can lead his company to exciting new products and new lines of business. To be fair, Nadella recently arrived, whereas Cook has been at the helm for three years, so the next few months will be a critical test for his leadership and vision.

The Wall Street way: I’m rich; you’re fired What surprised me the most as I listened to Microsoft’s earnings call on Tuesday was a word I didn’t hear: layoffs. Nadella has already said cuts could reach 18,000, and most of us expected more details to emerge. None did.

Most of the job losses are a direct result of the Nokia purchase, which only happened because former CEO Steve Ballmer couldn’t figure out a way to make Microsoft competitive in mobile.

As Gregg Keizer, a colleague at our sister publication Computerworld pointed out, the bounce that owners of Microsoft stock have enjoyed since the door hit Ballmer’s butt on the way out of the building has made the man a cool $2.8 billion. That’s enough to pay for his shiny new basketball team, with $800 million left over. That’s one hell of a reward for a man who completely missed the boat on the most important trend in technology.

Eight hundred miles to the south in Palo Alto, Calif., the queen of HP is set to lay off 16,000 people, in part the result of yet another terrible acquisition: Autonomy. Over the years, Whitman’s wretched predecessors and supine board of directors have fired tens of thousands of people and made the company a study in terrible management. Whitman is still cleaning up that mess.

Nonetheless, Whitman has pulled HP out of what looked to be the beginnings of a death spiral, though she hasn’t brought any excitement or notable innovation to the table. But investors are more than happy, so they have pushed the stock up from about $26 a share a year ago to almost $35 this week.

Who would have thought it? Working and getting stock options at one of these old-line companies may be a better deal than heading for a hot startup — unless you get fired.

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This article, “Money before innovation: Why Wall Street loves tech giants these days,” was originally published by InfoWorld.com. Read more of Bill Snyder’s Tech’s Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.