This Past Week In Tech - It's Earnings, Earnings, Earnings

By Aaron Levitt | January 30, 2013 AAA

It's earnings season once again for the stock market, and the tech sector is no different. The results for a number of tech heavyweights' fourth quarters are finally beginning to roll in. This is a critical earnings report, as it not only shows how the firms did throughout 2012, but just how successful the consumer device companies were during the holiday season. So far, results have been mixed. That's had some analysts wondering just how the sector will fare in the upcoming months. For investors, looking at some of the recent reports could shine some light on tech's fate in 2013.

SEE: A Primer On Investing In The Tech Industry

Microsoft Disappoints with Windows 8
Amid the increasingly competitive landscape, Microsoft (Nasdaq:MSFT) had pinned its hopes for increased personal computer sales on the launch of its new Windows 8 system. That didn't go according to plan. The tech giant completely redesigned its popular OS to bring cohesion across smartphones like Nokia's (NYSE:NOK) Lumia series, PCs and tablets. Windows 8 adoption, however, hasn't been as strong as the firm would have liked.

Despite those "poor" adoption numbers, Microsoft still sold roughly 60 million Windows 8 licenses. Those licenses helped Microsoft increase its overall revenue by 34% in the quarter and achieve earnings of 76 cents a share. While gross margins dropped and its business division had weak spots, Microsoft reported a relatively normal quarter as new products, growth in its cloud computing segment and share gains in search combined to generate encouraging results.

SEE: Technology Sector Funds

Streaming Video Equals Streaming Profits
It seems that streaming content provider and DVD rental firm Netflix (Nasdaq:NFLX) may still have a few tricks up its sleeve. With firms such as Coinstar (Nasdaq:CSTR) and Amazon (Nasdaq:AMZN) supposedly "eating the company's lunch," Netflix reported a strong profit as well as a surge in new subscriptions for its streaming services.

Netflix added roughly 2.05 million new streaming customers in the quarter - beating analyst estimates. That helped the firm report a surprise profit of 13 cents a share - again beating analyst estimates of a loss. That upside surprise sent shares of the firm skyrocketing 42%, as investors may have once again realized that the firm is king in the online entertainment world.

That crown continues to get stronger, as Netflix has made recent moves to add original and more content to its library.

SEE: What's Next For Netflix?

A Big Profit for Big Blue
Also reporting better-than-expected results was IBM (NYSE:IBM). The supplier of hardware, software and services continued to report profits for the last quarter of 2012. While revenue was essentially flat, IBM managed to report a 6% increase in profit, beating analysts' expectations.

IBM saw net income of $6.1 billion for the fourth quarter, with earnings per share of $5.39. The biggest contributor to that were Big Blue's software sales, which gained 3%. That helped offset weakness in its services business.

The Earnings Results from the Patent Wars
It's no secret that Apple (Nasdaq:AAPL) and Samsung (OTC:SSNLF) hate each other at this point. Both have been locked in an expensive battle of various smartphone and mobile patents, resulting in lawsuits, fines and potential product bans. With many of the major legal decisions having taken place in the last quarter of 2012 for the two firms, their recent earnings announcements can be a gauge to who's really winning. The answer is surprising.

While investors showed concerns with Apple's latest numbers and sales, Samsung reported a record profit of $8.3 billion. That's an increase of 89% versus a year ago. Samsung may have the upper hand versus Apple. Not only is it the world's biggest smartphone maker, but it's a key supplier of memory chips, flat screens and microprocessors for Apple's iPhone and iPad. While that supplier relationship has been strained due to the recent patent litigation, investors haven't seemed too worried. Shares of Samsung have surged 12% over the last three months, while Apple has fallen 20%.

The Bottom Line
Reporting year-end and final quarter 2012 numbers, earnings season for the tech sector is in full swing. So far, we've seen some of the sector's giants already report. The weeks ahead should be more of the same. As such, investors should expect a bumpy ride for broad tech funds such as the Technology Select SPDR (ARCA:XLK), since what has been reported has been extremely mixed.

At the time of writing, Aaron Levitt did not own any shares in any company mentioned in this article.

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