Editorial: Nosedives and skyrockets

Editorial: Nosedives and skyrockets

It's a fairly diverse bunch of vendors, but what do Apple, Intel, SAP, Nokia and Creative have in common? Well, for a start, they all have happier shareholders than their counterparts at IBM, AMD, Sony Ericsson, Sun and Philips.

All of these companies have recently released financial results and - apart from the irrefutable evidence that MP3 players are red-hot at the moment - the only pattern seemed to be that there wasn't one.

Apple was first to post its numbers, with skyrocketing profits of $US290 million for its second fiscal quarter of 2005. While the sale of more than 5 million iPods during the period (a 558 per cent rise when compared to the same quarter last year) must have been music to its corporate ears; moving more than a million Macs (a 43 per cent increase in CPU units) was also very significant. To put the quarter in overall perspective, profits were more than six times bigger than those of Q1 2004.

But these incredibly impressive results were followed by a run of less desirable announcements. Firstly, growing losses from its Spansion flash memory business saw AMD post a second consecutive quarterly loss (although it is important to note that its processor business posted record revenues and profits).

Then Sun disappointed Wall Street analysts (that is disappointed, rather than surprised) with a net loss of $US61 million, including a $US45 million restructuring charge, on revenues of $US2.65 billion in its third fiscal quarter. It has now failed to increase revenues by more than one per cent for 16 consecutive quarters.

And as those New York number crunchers were still coming to terms with that news, IBM sent them all running for cover by reporting first quarter earnings that were significantly short of expectations. To be fair, it did record quarterly net income of $US1.4 billion on revenues of $US22.9 billion and both figures were up three per cent from the same period last year.

But Big Blue is often considered to be a yardstick for the IT industry and even an earnings miss would still have had some of the more pessimistic analysts waiting for the sky to fall in.

Those fears wouldn't have been helped when Sony Ericsson ended the week by announcing its net income had taken a nosedive from Euro 82 million in the first quarter of 2004 to Euro 32 million for the same period of this year. At this point, we definitely had a trend. And it only got bigger at the start of the following week when Philips profits plunged to Euro 117 million from Euro 550 million a year earlier.

But just when it was starting to look like an industry-wide problem, Intel beat the spread by announcing strong sales of mobile processors had helped it to record net income of $US2.2 billion (up by 25 per cent from the same period last year) on Q1 revenues of $US9.4 billion (an increase of 17 per cent).

SAP continued the fightback by announcing profits of Euro 254 million in its first quarter, up from Euro 229 million in the same period a year earlier, and driven, in particula,r by strong sales in the US. And Nokia quelled stock market palpitations even further when it posted Q1 profits of Euro 863 million compared to Euro 729 million in the corresponding quarter of 2004. Nobody, it seems, was more surprised than Nokia itself - the result topped even its most optimistic prediction.

The final results to arrive at the time of going to press were from Creative, which proudly announced record first quarter net sales of $US333.8 million (up from $US201.8 million for the same period in 2004). But the mood of celebration was tempered by a fall in profits from $US8.7 million to $US1.1 million.

Considering how relatively new the MP3 player market still is, it must be a slight worry that profits are already shrinking so rapidly. Guess it's already too late to design one in the shed.

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