Wall Street Beat: Earnings forecasts appear cautious

With major technology and e-commerce companies such as Microsoft Corp., Amazon.com Inc., and Computer Associates International Inc. reporting financial results this week, investors and technology users once again had plenty of data to sift through to get a broad idea of how the IT market is faring. Though IT bellwethers last week and this week generally have reported solid quarterly earnings, some cautious forecasts for the next quarter or two led the Nasdaq Composite Index (COMPX) to falter.

Microsoft, reporting after the market closed Thursday, said revenue was fueled by good hardware sales in the third quarter and demand for core products such as Windows and SQL Server. The company reported income, excluding legal charges from a settlement with RealNetworks Inc., of $0.31 per share, beating by $0.01 the forecast of analysts polled by Thomson First Call.

However, the company’s expectations for the current quarter are below analysts’ forecasts. On Thursday it predicted profit of $0.32 or $0.33 per share on revenue between $11.9 billion and $12 billion, while analysts were forecasting profit of $0.35 per share on revenue of $12.29 billion, according to First Call. The more cautious Microsoft forecast may cause concern, since it indicates that major new products, such as a new version of SQL Server that will be available during the quarter, may not sell as well as had been hoped.

Online e-commerce giant Amazon, reporting results on Tuesday after the market closed, disappointed investors in the Internet arena, especially after Google Inc.’s stellar performance in the third quarter, which was announced last week.

Although Amazon’s revenue jumped by 27 percent compared to a year earlier, partly as a result of orders of the latest Harry Potter book, its earnings were hurt by a legal settlement stemming from a patent lawsuit. Even excluding the $20 million lost as a result of the settlement, the company was $4 million below the year-earlier quarter’s $54 million profit. But the kicker was a cautious outlook for this quarter, which ends with the holiday season on Dec. 31. Sales growth for the current quarter was forecast to be anywhere from 13 percent to 24 percent. Company shares (AMZN) dropped by $6.42 to close at $39.75 Wednesday, and several analysts downgraded their advice on the company, changing “hold” recommendations to “sell” and “buy” recommendations to “hold.”

Although Computer Associates Tuesday reported third-quarter revenue that fell short of what analysts expected, income of $41 million was up from a $98 million loss a year earlier. Company shares (CA) rose Wednesday by $0.93 to close at $28.47. The company seems to be restoring confidence in its future, as more analysts advise to buy the stock. As of Thursday, 11 analysts advised a “strong buy,” five recommended a “buy” and six counseled “hold.” No analysts advised selling the stock.

However, in a theme that was common this week, the company’s forecast for the rest of its 2006 fiscal year, which ends March 31, came in $0.01 below the $0.25 earnings per share that analysts were predicting.

The cumulative effect of the cautious earnings expectations this week seemed to drag down the Nasdaq index (COMPX), which dropped by 36.24 points on Thursday to close at 2063.81.