Wall Street Beat: Earnings reports churn market

After a one-day respite Monday for the Martin Luther King national holiday, technology company earnings reports last week continued to roll out, roiling U.S. exchanges. While some bellwether companies such as IBM and Yahoo reported solid earnings, signs of weakness in certain sectors and muted forecasts for the year played on the uncertainty that investors have displayed so far this year, and kept downward pressure on key indexes including the Nasdaq Composite Index.

A somber reaction to even some of the good news this week reflected worries about slow tech growth.

"Don't expect a general technology boom," said Chris Brown, manager of the Pax World Balanced Fund, on a midweek conference call with media. "Instead we expect a narrow recovery in certain areas like high volume data storage and security technology companies."

Brown noted however that companies with hefty foreign sales may benefit from a weak dollar. This was the case with IBM, which on Tuesday reported fourth quarter earnings that Chief Executive Officer Sam Palmisano said were the strongest in the company's history. Hardware, software and services all rose, with a 7 percent overall revenue increase, to US$27.7 billion. Earnings were up 12 percent to US$3.04 billion. Nevertheless, investors failed to rally immediately behind the company (IBM), with its share price falling several dollars over the next few days from its US$95 level on Tuesday.

Yahoo, also reporting on Tuesday, posted fourth quarter net income of US$372.5 million, up from US$75 million in 2003. Excluding an investment gain, Yahoo's net income was US$187 million. Like IBM, however, Yahoo shares (YHOO) moved down several dollars over the next few days from just under US$38 to just under US$36.

Disappointing earnings from other companies on Tuesday and Wednesday morning appeared to dampen investor confidence.

Advanced Micro Devices, for example, reported slow growth in the fourth quarter due to competition in flash memory products. For the fourth quarter, AMD posted a net loss of US$30 million, compared to a profit of US$43 million a year earlier. AMD Chairman, President, and Chief Executive Officer Hector Ruiz, talking about the company's memory business, said "It makes me puke to lose US$39 million." Trading in company shares (AMD) stayed in the US$15 range for the next several days.

Reporting on Wednesday, Lucent Technologies reported revenue for the quarter ending Dec. 31 rose 3.4 percent from one year earlier, to US$2.34 billion, but net income plunged 50.1 percent to US$174 million. Trading in company shares (LU) moved lower by about US$0.30 over the next few days to about US$3.30.

After the market closed Wednesday, eBay reported fourth-quarter earnings that rose 44 percent but failed to meet analysts' forecasts. The company also said it expects pro forma 2005 earnings of 48 cents to US$1.52 a share, also below forecasts. The company's shares (EBAY) promptly plummeted by US$19.72 on Thursday.

AT&T on Thursday morning reported net income of US$625 million for the fourth quarter of 2004, due to tax benefits and cost cutting, but a net loss of US$6.1 billion for the year, as a result of asset impairment in the wake of its pullback from the consumer market. The company's shares (T) lost US$0.44 to close at US$18.07

The mixed news of the week had a churning effect on markets. On Thursday alone, the Nasdaq Composite Index dropped 27.71, or 1.3 percent, to 2045.88, below last week's close of 2,087.91.

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