Q1 results for tech bellweathers worry Wall Street

Though Google’s financial results shone this week, other key technology companies showed signs of weakness that have IT investors worried.

As usual, Google was the star of earnings week, reporting Thursday that first-quarter profit skyrocketed 69 percent to $1 billion, mainly because of advertising revenue, which is rising faster than it has for archrivals Yahoo and Microsoft. Excluding one-time charges, the company’s EPS (earnings per share) was $3.68, compared to analyst estimates of $3.30, according to Thomson Financial. The after-hours share price jumped immediately by more than $11 to more than $482.

But worries about online profits, in general, arose after the market closed Tuesday, when Yahoo reported that earnings for the first quarter were $142 million, declining from $160 million in 2006 and falling short of analyst expectations. Fearing that Yahoo will experience continued earnings difficulty in the highly competitive search market, tech investors dumped company shares this week, and analysts lowered their guidance on the company.

For example, brokerage William Blair & Co. lowered its second quarter EPS estimate to $0.11 from $0.12. Yahoo has generally been praised for moving aggressively in snapping up social-networking services like the Flickr photo-sharing site and for efforts it’s making on Project Panama, a new way of ranking search results combining paid ranking and search result algorithms.

But Google’s announcement last week of its planned $3.1 billion acquisition of DoubleClick, which manages online ads and manages ad campaigns, took the wind out of Yahoo’s sails. Shares closed Tuesday at $32.09, plunged to $28.31 Wednesday, and continued to decline during the week.

Meanwhile, eBay did not get any respect for a generally strong first quarter performance. The online auction giant reported Wednesday that quarterly earnings were $377.2 million, compared with $248.3 million in the same quarter last year. Revenue rose 27 percent to $1.77 billion, while analysts surveyed by Thomson Financial had forecast eBay’s revenue at $1.72 billion. Nevertheless the company’s share price dropped $1.39 Thursday to $33.09.

In the tough online market, analysts appear to closely examine any weakness in a company’s business. Analysts noted that eBay’s growth in its Marketplace auction services had slipped to 23 percent year-over-year growth from the 24 percent reported in the fourth quarter. This is leading to speculation that this key business is maturing and slowing down.

IBM Tuesday reported quarterly earnings of $1.8 billion and EPS of $1.21, equaling the estimate of Thomson Financial analysts. However, a slowdown in its U.S. enterprise business spooked investors, who pushed the company’s share price lower. After closing before the earnings announcement Tuesday at $97.12, company shares plunged to $94.80 Wednesday and continued to drift lower during the week.

In the components arena, Intel reported flat revenue for the first quarter but said that layoffs and tax benefits helped it generate a 19 percent increase in profit from the year before to $1.6 billion. Intel share prices jumped to $21.35 Wednesday after closing $20.98 Tuesday and continued to rise during the week. Nevertheless, brokerage houses cut their guidance on the company for the next few quarters. Credit Suisse, for example, cut its 2007 EPS estimate for the company to $1.04 from $1.08, warning that AMD will continue to exert pricing pressure on Intel.

However, AMD itself appeared to fall victim to price competition Thursday reporting a loss of $611 million, down from a profit of $185 million a year ago. Though much of that loss was due to charges for acquiring and integrating graphics chipmaker ATI, the drop scared investors. Company shares started to decline in after-hours trading Thursday.