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Tech Earnings Roundup: AAPL, FB, AMD, GRMN, FIT, More

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A host of technology companies reported last week including Apple (AAPL - Free Report) , Facebook , Advanced Micro Devices (AMD - Free Report) , Garmin (GRMN - Free Report) , Fitbit (FITB - Free Report) and more. In fact, around 71.0% of tech companies have reported thus far according to the latest earnings trends report, of which 79.5% beat on revenue and 77.3% beat on earnings. Moreover, while sector revenues grew just 6.4%, earnings growth was much stronger at 16.5%. 

So let’s jump straight to the top earnings for the week-

Earnings

Apple: Apple’s second quarter revenue and earnings were both well ahead of the Zacks Consensus Estimate. The expected negatives that didn’t take anyone by surprise were the decline in iPhone units and ASP, decline in iPad units, and weakness in China.

Although not a good quarter by any means, there were some bright spots: continued growth in Other revenue (up 31%), Services (up 18%), App Store (up 40%) and Macs (up 14%, helped by the new MacBook Pro). India holds promise, continuing to grow at a double-digit rate off a relatively small base.

Moreover, enterprise penetration continues to increase (important new clients in the last quarter include Volkswagen and Capital One), helped by partnerships with companies like Cisco (CSCO - Free Report) , IBM, and more recently, SAP and Deloitte. Overall, Apple increasingly looks like a solid value buy.

Facebook: Facebook also beat the Zacks Consensus Estimates for both revenue and earnings. Monthly active users (MAUs) were up 17% year over year to 1.94 billion. Daily Active Users (DAUs) were up 18% to 1.28 billion. The price per ad also continues to increase, proof of the platform’s popularity.

As a result, total advertising revenues were up 51% and mobile advertising revenues up 58%. Although, of course, with markets saturating, it may have to increase the ad load to keep on the growth path and this will affect user experience.

Offsetting that negative, however, is the prospect of increased sharing of original and licensed content that could make it a video hub. Then there’s the increasing number of platforms it has with billion plus users, further increasing revenue prospects. So this one remains a growth stock for the foreseeable future.

AMD: Advanced Micro Devices cut losses to meet the Zacks Consensus Estimate on the bottom line while beating on the top line. The company’s guidance disappointed however because investors generally expected its exciting new products (Ryzen in PCs and Naples in servers) to generate more in revenue and contribute more to profits this year.

To make matters worse, management said that AMD probably wouldn’t gain significant share from Intel (INTC - Free Report) in 2017. This could just be caution on management’s part and it’s worth nothing that even small share gains could be meaningful for the struggling chipmaker. The uncertainties make AMD a risky bet.

Garmin: In the seasonally softer first quarter, Garmin’s results beat the Zacks Consensus Estimates on both top and bottom lines. Garmin has a very well balanced business across the Auto/Mobile, Fitness, Aviation, Outdoor and Marine segments. The last quarter is typically a stronger quarter for the Marine business, but Aviation (longer sales cycle) and Outdoor (driven by wearables) also did well.

This is a very well-managed company showing relatively consistent margin expansion despite a segment (Auto/Mobile) in secular decline. It also has a healthy balance sheet (no debt) and manages to return cash to investors.

Fitbit: Fitbit matched the Zacks Consensus Estimate on the bottom line while exceeding on the top line. The company is seeing increased competition from Garmin and Jawbone, which is impacting results. The company has reorganized itself under the consumer and enterprise segments.

The company is doing relatively well in the EMEA and Asia where revenues grew 15.4% and 61.5%, respectively. But this was offset by weakness in the Americas, particularly the U.S.

Some Other Tech Earnings From Last Week: FireEye, Arrow, NXP Semiconductors, ActiVision, Zynga, Cognizant, Paylocity, GoDaddy, Akamai, Automated Data Processing, Qorvo, Square, Groupon, Alibaba.

 

Ticker

Price Change Last Week

Price Change Last 6 Months

AAPL

+3.69%

+36.85%

FB

-0.01%

+24.42%

GOOGL

+2.79%

+21.66%

MSFT

+0.79%

+17.53%

CSCO

+0.94%

+13.91%

AMZN

+0.99%

+23.71%

 

Other stories

Corporate

Apple Launches $1 Billion Investment Fund: Apple announced that it was creating a billion dollar fund for advanced tech manufacturing employment on CNBC’s Mad Money show. The company said that this wasn’t the first time it was employing people in the country given its 80K employees across 50 states in R&D, customer support, financial services and Apple's 271 U.S. stores.

Apple would like to add to that its U.S.-based suppliers like Corning and 3M, which it says results in 450K jobs and then of course there’s the App Store ecosystem of developers that Apple says generates 1,530K jobs. This it says means that Apple is responsible for 2 million U.S. jobs.

Dianne Bryant Leaves Intel: Intel has announced that data center chief Dianne Bryant will be taking a leave of 6-8 months for personal reasons. Since her position is so important, it won’t do to leave the position vacant. As a result, Navin Shenoy, SVP and GM of the Client Computing Group (CCG) will fill the position while Murthy Renduchintala oversees the CCG unit on an interim basis.

HBO Shows to Quit Amazon in 2018: In its earnings call, Time Warner said that it will take HBO shows off Amazon by the end of 2018. The agreement between the companies brought a significant number of viewers to HBO, but since Amazon was a direct competitor of the company’s own streaming service HBO Now, it didn’t make sense to continue the partnership. The conflict of interest was inevitable and is likely to be the case for other content providers to Amazon as well, which is probably the reason the company is spending so heavily on original content.

Amazon A.I. Hub in UK: Amazon will open a 60,000 sq ft R&D center for machine learning, drone technology, streaming video technology and Amazon Web Services later this year. The space can accommodate up to 400 engineers but Amazon hasn’t said how many it will start off with. Kindle, Echo and Alexa teams are expected to move to the location in Cambridge.

Legal/Regulatory

Google Tax Settlement in Italy: While Google has held in the past that it has complied with tax laws in every country of operation, it is now in the process of reaching settlements so it can continue to do business peacefully. It has now settled with the Italian tax authorities for a total amount of $306 million (of which $3 million is payable to Ireland) for the period between 2002 and 2015. When settling, Google said that it was paying the amount in addition to the taxes already paid in the said years. It still has to settle with France and Spain.

Developments on Google-Uber Case: While there appears to be significant circumstantial evidence of Uber’s guilt and it may have (through Levandowski) spirited off Waymo technology and trade secrets, Judge Alsup has now said that Waymo failed to establish a link between the theft and Uber. Google has so far not sued Levandowski and instead entered into arbitration with him while suing Uber.

It now looks like Waymo will lose the case if it doesn’t change the strategy. [Recap: Levandowski downloaded 14K files and left Waymo without notice, receiving $250 million the day after as a restricted stock award. Levandowski then formed self-driving truck company Otto that was subsequently acquired by Uber.]

EU Closes Antitrust Probe into eBooks: The European Commission decided to let Amazon off the hook on the basis of commitments it made to change its ebook contracts to remove anti-competitive elements. If Amazon fails to comply, the EU can fine it up to 10% of its annual turnover.

New Products/Technology

Windows 10S: At the EDU event in New York, Microsoft announced the Windows 10S operating system (locked down version of Windows 10 Pro) that it says will increase speed and security of devices. The OS will only run Windows 10 apps or those that can be accessed from the Windows Store, meaning that only those apps that have been converted using the Universal Windows Platform will be available for the 10S.

The default browser is Edge and the default search engine is Bing (and that can’t be changed). So typing in queries into the address bar would use Microsoft software only but if anyone’s really determined to use Google, they can create a bookmark or save it as the home page.

Currently, seven PC makers have signed on to make Windows 10S PCs that will retail for at least $189. Microsoft itself has launched a sleek and pricey ($999) Surface based on the 10S. It’s expected that the Surface is targeted at Apple’s Macbooks while the OEM models are targeted at Chromebooks, which have become quite popular at the high and low range of the education market.

M&A and Collaborations

Cisco Buys Viptella: Cisco has bought Viptella, which makes a software defined wide area network (SD-WAN). A WAN is generally used to connect geographically dispersed offices. The need to cut networking costs has led companies to go for software defined networking technology because it eliminates expensive hardware.

Cisco is one of the legacy high-end hardware vendors and has been a little slow to adapt to the change in market demand, so it has suffered from the trend. But the company has over the last few years stepped up acquisition spending to fill the gap. The Viptella acquisition may be expected to help Cisco in this respect as the company’s cloud-first technology packs in capabilities and scale although it is relatively easy to deploy.

Cisco Buys Data Analytics Team: Sagezza, which primarily makes data analytics and visualization tools for the financial services industry, will transfer technology and talent to Cisco for an undisclosed amount. Cisco is looking for a select group of experts in Santa Clara and India with unique capabilities in cloud and secure platform development with the goal of improving its network automation. The team will join Cisco's Enterprise Networking Engineering Group, led by SVP Ravi Chandrasekaran.

Amazon-Marvel in Comic Tie-Up: Amazon has added select Marvel comic titles to its comiXology Unlimited, Kindle Unlimited and Prime Reading subscriptions. The “Unlimited” in the title doesn’t actually refer to access to its 100,000 strong library from 125 publishers worldwide, but is still a good deal because it offers a rotating mix of some 10K comics for $5.99. It’s also different from Marvel Unlimited, which gives you the entire Marvel series that’s at least six months old for $9.99, albeit from Marvel’s not-as-good digital platform.

Twitter Live Content Deals: Twitter has signed a number of new live content deals in sports, entertainment and news with Women’s National Basketball Association (WNBA), BuzzFeed, Bloomberg News, The Verge and Live Nation. The streaming deals and news that billionaire Mark Cuban has started growing positive on Twitter prospects were positive for the company’s share price. Cuban, who has been a fan of A.I. for some time said that Twitter got its act together finally on the back of A.I, which led him to start buying shares in the company.

Some Numbers

Tablet Sales Decline: IDC says tablet unit shipments declined 8.5% in the first quarter of 2017 to 36.2 million units as continued growth in detachables couldn’t offset the steep and secular decline in slates. The leading player Apple (24.6% share) saw shipments decline for 13th straight quarter.  

Number 2 Samsung (16.5% share) is focused on detachables and now selling a few Windows-based ones. Huawei (7.4% share) is the only company seeing positive growth (31.7%) off a smaller base. Amazon’s Kindle Fire follows with 6.0% market share with Lenovo (5.7% share) rounding out the top five.

Samsung as Chipmaker: IC Insights, in a recent research report speculates that Samsung is poised to become the world’s largest chipmaker in terms of sales if DRAM and NAND memory prices hold up or increase through the year. This would displace Intel, which has held the top spot since 1993.

The research firm currently expects the DRAM market to grow 39% and the NAND market to grow 25% this year. It notes that Intel’s sales were 40% higher than Samsung’s in the first quarter of 2016 and price increases over the past year narrowed the gap between the two giant chipmakers.

Google, Facebook Becoming Media Companies: Google parent Alphabet has topped media agency Zenith's Top 30 Global Media Owners. According to Zenith, Google and Facebook together took 20% of the world’s advertising budget across platforms in 2016. They were followed by Comcast, Baidu, The Walt Disney Company, 21st Century Fox, CBS Corporation, iHeartMedia, Microsoft and Bertelsmann. Thirtieth ranked Twitter was the fastest grower (up 734%). The numbers are a clear indication of how ad spend continues to move from TV to online channels.

Amazon Prime Membership Doubles: Consumer Intelligence Research Partners (CIRP) estimates that Amazon now has 80 million Prime users in the U.S. At 2014-end, that number was 40 million, so it has doubled over a period of two years. CIRP thinks that the option to pay the Prime subscription on a monthly basis has helped membership growth to accelerate despite the fact that it’s a more saturated market now.

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