Wall Street Beat: Economy casts pall on earnings

As earnings reports rolled in from technology bellwethers, including Microsoft, Apple, Nokia, and Motorola, worries about the economy continued to overshadow good news this week.

The fourth quarter of 2007 was strong for IT sales, but a downturn in the U.S. economy, which many analysts fear is slipping into recession, is undermining investor confidence in the sector. Share prices of technology companies have dropped since the start of the year, with the Nasdaq Composite Index sinking to pre-2007 levels.

Microsoft provided some cheer Thursday, reporting a strong quarter for core products such as Windows Vista and Office 2007. Revenue for the quarter increased 30 percent year over year to $16.37 billion.

Just as important as many market observers fear the U.S. is entering a recession that will affect technology, Microsoft also raised its forecast for its fiscal year, which ends June 30. Noting that Office and video game sales are doing better than expected, the company said it expects revenue for its fiscal year in the range of $59.9 billion to $60.5 billion. Three months ago, the forecast was $58.8 billion to $59.7 billion.

The report, however, provided only a momentary uptick in Microsoft shares and the Nasdaq, even though other news on the software front was good.

Enterprise database vendor Sybase, for example, said Thursday that it had its first billion-dollar sales year in seven years, helped by a 15 percent jump in revenue for the fourth quarter to $295.2 million. What’s more, its forecast for this quarter remains strong.

“We have a balance in our product portfolio and a balance geographically as well,” said company Chief Marketing Officer Raj Nathan.

Though Sybase has a stronghold in the financial vertical market — a sector that is in trouble — Nathan pointed out that the company is strong in the telecom arena as well, does about 50 percent of its business outside the U.S., and is developing new analytics products that will help financial companies manage risk and do program trading.

The company was one of the few that ended the week on a happy note with its share price increasing by $0.56 to close Friday at $27.44.

Other companies did not fare so well, as investors jumped on any scrap of bad news. Apple got hit hard even though it reported quarterly revenue of $9.6 billion, a whopping 35 percent year-over-year increase. Investors were spooked about slowing iPod sales and a weak forecast for this quarter. iPod shipments of 22.1 million were about 10 percent below what had been expected.

Apple shares plunged, dropping from $161.36 last Friday to $130.01 this Friday.

Motorola had a rough week, reporting Tuesday an 84 percent plunge in income for the fourth quarter to $100 million and warning that its market-share losses would continue as the U.S. market — the company’s cell-phone stronghold — continues to slump until next year. Company shares dropped $2.27 to hit $10.05 Wednesday on the news, and stayed below $11 through the week.

“Management’s view of [a] recovery being a 2009 event pushes the recovery further past the horizon most investors are willing to hear at this point,” said Citigroup Global Markets in a research report.

Nokia, with hit products and a strong presence in Asia, on Thursday reported a 44 percent rise in profit for the fourth quarter, to €1.84 billion ($2.7 billion), on a 34 percent sales increase. A slump in U.S. sales was more than offset elsewhere. Nokia shares jumped Thursday on the news, rising $4.05 to close at $36.48 — and then fell right back down Friday after IDC issued a report that suggested Nokia’s confidence in 2008 was misplaced.

In an economy that has investors focusing on the bad news, it’s going to take some evidence of strong sales in the current quarter to bring confidence — and tech share prices — back up to where they were. The Nasdaq finished 2007 up by 9.8 percent, but in the first four weeks of this year, last year’s gain has been wiped out with the index closing Friday almost 300 points down from the end of December.