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Wall Street Beat: Stocks tank as tech earnings look mixed so far

Wall Street Beat: Stocks tank as tech earnings look mixed so far

Microsoft shares provide a bright spot as other tech stocks decline

Stocks including shares of tech companies tanked on Friday mainly due to worries about slowing global economic growth, but the mixed earnings reports from IT giants did nothing to calm concerns.

Major exchanges and stock indexes closed down Friday, as the Dow Jones Industrial Average plunged 318.24 points to close at 15879.11 Friday. Of the four tech stocks on the Dow, IBM, Cisco and Intel closed down, with only Microsoft closing up for the day. The Nasdaq Computer Index closed at 2016.34, down by 38.85 for the day.

Microsoft boosted investor optimism Thursday by reporting a 14 percent increase in revenue, to US$24.51 billion, for the quarter ending Dec. 31.

Profit was up by 3 percent, to $6.56 billion. Revenue was boosted by strong sales of the company's consumer devices unit, which makes the Xbox console and Surface tablets.

Microsoft closed at $36.81 Friday, up by $0.75 a bright spot in a gloomy day.

But concerns about shrinking profit remain, as Microsoft shifts from the high-margin software business to become a services and devices company. The discrepancy between the increase in revenue and profit is a broad indicator that higher sales of such a company does not translate directly into perfectly corresponding higher net income.

For example, although sales from Surface tablets rose from $400 million in the September quarter to $893 million in the December quarter, Microsoft actually lost money in that business due to the cost of making and marketing the tablets.

Meanwhile, as Microsoft prepares to close the deal to acquire Nokia's devices business, the Finnish mobile phone maker reported disappointing sales.

Revenue for Nokia's Devices & Services business was €2.6 billion, (US$3.5 billion), down 29 percent year on year. The company is reporting that part of the business separately now, as it moves to close the sale to Microsoft, expected in March.

Nokia said it shipped fewer phones overall, year-on-year, but that smartphone sales increased. Though the company did not break out specific numbers, the rise in smartphone shares could be the silver lining in the earnings announcement, since smartphones have higher margins than low-end phones.

Nokia shares on the New York Stock Exchange slipped by $0.17 Friday to close at $6.86.

News from elsewhere on the mobile phone and hardware front lately has not been good.

On Friday, Samsung Electronics reported that profit was flat year over year in the fourth quarter. The company reported that its IT and mobile communications unit, which includes smartphones and tablets, had operating profit of 5.47 trillion Korean won (US$5 billion), about the same as for the year-earlier period, though revenue for its mobile business grew 8.7 percent to over 32 trillion won.

Samsung said earnings were curbed by marketing costs and an unspecified one-time expense.

The tough quarter for Samsung and Nokia was especially disappointing because the fourth quarter is usually a strong one for phones and devices, as consumers shop for the holidays.

In a reminder of how profitable software is compared to hardware, SAP said Tuesday that although fourth quarter revenue was up only 2 percent, to €5.1 billion, net profit jumped 20 percent to €1.3 billion. The company experienced a 2 percent decline in software revenue to about €1.9 billion, but said cloud subscriptions and support revenue skyrocketed by 66 percent to €209 million.

SAP expects to increase its total revenue to at least €22 billion (US$30 billion), compared to €16.8 billion in 2013. Revenue from its cloud business is forecast to rise to €3.5 billion by 2017.

The shift to cloud in the company's revenue mix is considered a good thing by analysts, though the healthy earnings report did not help company shares Friday. SAP closed Friday at $77.47 on the NYSE, down by $2.18 for the day.

Stocks have been declining all week, with the sell-off intensifying globally Thursday on fears about slowing growth in China. Reports showed signs that manufacturing was declining in the country. China is a huge importer of raw materials and a big tech market. In addition, values of currencies in emerging markets including Turkey, Russia, South Africa and Argentina dropped.

The U.S. economy is growing, leading the Federal Reserve to taper its bond-buying program to buoy the stock market, but concerns remain about other economies.

"Fed tapering has been well flagged, the recovery in growth continues and fiscal issues have been (at least for now) largely resolved. In two other areas of the world, however, prospects look less clear," according to an EFG Capital Advisors research note on the 2014 global financial outlook. "In China, a hard landing has been talked about and avoided for many years but many are still fearful of such an outcome. They point to issues with rebalancing growth away from exports and investment and problems in the shadow banking system."

Though the worst of the Euro zone crisis appears to have passed, recovery is still anemic.

"On Europe, as financial conditions have stabilised, growth prospects have picked up. There, also, equity valuations are cheap: is that an opportunity or a trap?" EFG asked.

Meanwhile, earnings season continues next week as Google, Yahoo, AT&T and Facebook announce results.

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