Microsoft Corporation (NASDAQ:MSFT) was the prodigy boy that sneaked the software game from under the nose of International Business Machines Corp. (NYSE:IBM) when the latter used to be the biggest game in technology space. As history would have it, David became Goliath and some decades later, it couldn’t see the internet revolution coming. Microsoft Corporation (NASDAQ:MSFT) was challenged and toppled by Google Inc (NASDAQ:GOOG) in something of an encore. So, when these companies report their contrasting fortunes on the same day, it makes for a memorable event.
Sale on IBM
International Business Machines Corp. (NYSE:IBM) lost nearly 8% after reporting that its first quarter revenue fell 5.1% to $23.4 billion, and reports emerged that the company is looking to cut up to 14% of its workforce in France. Despite the drop in revenue, the company managed to rationalize its costs and still posted 8% growth in earnings per share to $3. However, this fell short of analysts’ expectations of at least $3.05. The company was essentially saved by service segments with pre-tax income in Technology Services growing 7%, while Business Services pre-tax income jumped 17%.
On the contrary, the Systems and Technology segment dragged earnings by swinging to a loss of $405 million. Despite a disappointing first quarter, the International Business Machines Corp. (NYSE:IBM) chief executive is still hopeful of meeting a full year operating EPS guidance of $16.7. After the cut, the stock trades at a price earnings ratio of 14.3, which is quite attractive in itself, but further drops to 11.2 on a forward basis. The stock is now just around 6% above its 52-week low, indicating that current prices are very attractive.
Arch rival Microsoft Corporation (NASDAQ:MSFT) had a better day as its shares were helped by announcements that it expected to lower operating expenses for the full year. Microsoft Corporation (NASDAQ:MSFT)’s quarterly revenue surged 18% to $20.5 billion, although it undershot Street expectations of $20.56 billion by a hair.
However, it was more than made up by a 19% increase in profit to $6.06 billion. In earnings per share terms, the $0.72 per share it reported was ahead of the $0.68 per share analysts were expecting. Revenue growth came in pretty strong in the Windows division, which got a boost of 23% despite global shipments of personal computers falling 14% during the quarter. As a result, the stock recovered smartly in morning trade on Friday last week after receiving a drubbing the previous week on concerns that falling personal computer shipments spelt doom for Microsoft Corporation (NASDAQ:MSFT).
Google feels the heat in mobiles
Google Inc (NASDAQ:GOOG) reported its quarterly profits which came ahead of expectations, but cracks in revenue growth are visible, leaving market experts worried if the growth rates are sustainable. Quarterly revenue came in at $14 billion, up 31% from last year. However, ad fees per click declined 4% on a sequential basis due to a larger share of smartphone ads, where variation in rates can be as high as 50%.
GAAP net income in the first quarter of 2013 was $3.35 billion, compared to $2.89 billion in the same period last year. Having already gained 12.5% so far in the year, the stock appears fairly valued at a forward price earnings ratio of 14.3. A major overhang remains in the form of potential regulatory constraints or fines, especially in Europe.
Foolish bottom line
On the whole, the companies have found their separate operating niches and yet they are compared to each other. Valuations for International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT) are attractive, indicative of further appreciation in stock price, but the same cannot be said about Google Inc (NASDAQ:GOOG).
The article A Tech Tale of Conflicting Results originally appeared on Fool.com and is written by Jacob Wolinsky.
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