Apple stock rose 7% after reporting earnings. Investors are surprised because the consensus view did not incorporate the company's success in software. This is a key point: Apple will be far less reliant on new phone sales going forward because of the huge success of its services platform, which grew 19% last quarter and resulted in record App Store revenue.
Intel stock fell 4% after reporting quarterly earnings, which was justified because the company continues to see declines in its core PC related segment. Intel's higher-growth segments like data centers and the Internet of Things were not enough to offset weakness in the PC industry.
Once again, the biggest growth driver for Microsoft last quarter was its cloud-based businesses like Office 365 and Azure. Microsoft has done an excellent job transitioning away from being a PC-reliant company, to one that is well-positioned to grow in the new technology era.
Investors should focus on the company's strategic imperatives, which are its higher-growth cloud, mobile, security, and big data businesses,\. These segments collectively grew 12% last quarter, and now represent 38% of IBM’s total revenue. With continued growth, these businesses could eventually bring IBM back to sustained revenue growth.
Apple shares declined 8% in after-hours trading following its disappointing quarterly results. Revenue declined for the first time since 2003, and sales fell across the iPhone, iPad, and Mac. But there was some good news too. Apple raised its dividend by 10% and added $35 billion to its stock buyback authorization. It still generated $10.5 billion of profit last quarter. At 11 times earnings, Apple is too cheap to sell here.
Microsoft achieved 5% constant-currency revenue growth for the quarter. Once again, it was its cloud-based offerings such as Office 365 led the way. The company did a great job of keeping adjusted EPS flat year over year, despite the continued deep erosion in the PC. As Microsoft shifts away from the PC toward cloud-based products, the company will further reduce its reliance to the PC in the future.
Intel's strong earnings beat last quarter was overshadowed by its decision to cut 12,000 jobs, or 11% of its workforce. The news sent the stock down 3% after hours, even though the company grew revenue and earnings per share on a year over year basis. This was no small feat, given the decline in global PC shipments. Intel realized 9% revenue growth in data centers, and 22% growth in the Internet of Things. But investors are taking the news of layoffs as an indication of difficult times ahead.
The fact that IBM's revenue has declined for 16 consecutive quarters got all the attention. But excluding the effects of foreign exchange, revenue was down 2% year over year--hardly cause for panic. The declines in revenue are slowing, as the strategic imperatives continue to grow at high rates. This could indicate that a return to revenue growth may come by the end of the year.
Despite the pervasive negativity, Apple still grew revenue and EPS at respectable rates in constant currencies. In addition, its cash hoard continues to grow; Apple now holds $215 billion in cash, short-term investments, and long-term investments with just $53 billion in long-term debt. The company is in a product lull, but the next iteration of the iPhone should reignite growth.
IBM's headline revenue and earnings declines continue to get all the attention from analysts, but the company's strategic imperatives are still growing at high rates. These businesses should become a majority of total revenue in a few years. Adjusting for currency and divestments, revenue was down just 1% last year.
Customer additions continue to grow, (6 million expected in Q1) even at an accelerating rate, and Netflix hasn't even brought itself to China year. This shows the reason why investors are willing to pay such a high valuation multiple for the stock. Revenue is expected to grow 29% this quarter, year over year.
Intel deserves credit for once again growing Data Center and IoT revenue, but these gains continue to be overshadowed by the decline in the PC business. The Client Computing Group still constitutes 58% of Intel's total revenue, making it difficult to grow even with progress in other areas.
Apple’s outstanding growth was once again led by its flagship iPhone device and growth in China. Apple sold 48 million iPhones last quarter, up 22% year over year. Apple grew revenue in China by an astonishing 99% year over year. One concern from Apple's earnings is the continued declined of the iPad; units sold fell 20%. Overall though, another fantastic quarter for Apple.
Once again, cloud growth is the key driver for Microsoft's earnings beat. Adjusted currency-neutral earnings per share was up 15% year over year, thanks in large part to Microsoft's cloud products. Annualized commercial cloud revenue has reached $8.2 billion and growing.
IBM stock sold off 5% after the company posted its 14th consecutive quarter of declining total revenue. But the strategic imperatives continue to perform very well. Cloud revenue is up 65% year-to-date; annualized rate of $9.4 billion. The shift to higher-value businesses is still on track.