2016’s Tough Beginning For Tech Giants

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The technology sector may not have particularly begun 2016 in the best way possible. At least not if the quarterly earnings report of Alphabet, Microsoft and Apple are anything to go by.

Google’s Risky Bets
Google’s parent company, Alphabet’s first-quarter net profits increased 20 percent to USD 4.2 billion, but adjusted earnings of USD 7.50 a share missed estimates of USD 7.96. The group’s overall sales jumped 17.3 percent to USD 20.3 billion but the reported sales excluding the costs of acquiring traffic was well below Wall Street estimates.

The Company’s core division of search engine and YouTube among other properties, reported a 17 percent rise in revenues but the ‘other bets’ arm that is home to risky ventures such as self-driving cars, continued losing money, with its quarterly loss deepening from USD 633 million in the first quarter of 2015 to USD 802 million.

Apple’s First Decline In A Decade
On the other hand, Apple posted its first quarterly decline in revenue in more than a decade, ending a historically great run for the world’s most valuable company.

Apple’s revenue and profit for the quarter missed analysts’ expectations. Apple reported profit of USD 10.52 billion, or USD 1.90 per share and a revenue of USD 50.55 billion, whereas the analysts expected Apple to post earnings of USD 2 per share on revenue of USD 51.97 billion. Revenue decline in this quarter compared to the previous year is 13 percent to USD 50.55 billion from USD 58 billion.

The iPhone was the main reason the company did not do well as the previous quarters. The company has struggled to maintain the sales flow that followed after introducing its larger-screen phones in 2014. The newer models in 2015 were not able to generate much interest on their customers. iPhone sales dropped by 16 percent to 51.2 million. The company sold 10.3 million iPads, which are 18 percent below the last year and 4 million Macs, down 13 percent.

During a conference call with investors, Tim Cook, CEO, Apple highlighted growth in Apple’s services category that includes iTunes and Apple Music, noting that it was the second-largest revenue generator behind iPhones during the quarter. Mr Cook also blamed the weak sales on macroeconomic headwinds as well as fewer upgrades to the newest iPhone after a large number of conversions for the larger screen on the iPhone 6 last year.

Microsoft Declines
Microsoft’s net earnings dropped 25 percent in the quarter to the end of March to USD 3.8 billion. Adjusted profits per share of 62 cents also missed the estimates by 2 cents. Revenues declined 6 percent in this quarter.

The company is in the process of transitioning away from the deteriorating PC-software market that helped establish the group as technology giants, and into the faster-growing cloud computing sector under the direction of Chief Executive Satya Nadella.

The pressure on these tech stalwarts is likely to be higher in the year ahead to not only arrest decline but do so in a year that is not among the most promising ones from a global economy standpoint.

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