Wall Street Beat: Oracle, RIM Caution Weighs on Tech
In a tumultuous week on the markets, the big news for the tech sector was Research in Motion falling short of Wall Street's first-quarter expectations, and Oracle's caution about the current quarter.
Even though RIM and Oracle had strong quarters, IT investors jumped on the uncertain forecasts in a week of general economic worry. The price of crude oil jumped Thursday, and the financial sector was rocked by analyst downgrades of Citigroup. The tech-heavy Nasdaq dropped by 79 points to close at 2321. Though tech companies did surprisingly well in the first quarter, continuing concerns about energy prices, financial markets and consumer spending have taken a toll on tech vendor share prices this year.
RIM said Wednesday that first-quarter net income increased to US$482.5 million, or $0.84 per share, compared with net income of $223.2 million in 2007. Revenue rose a whopping 107 percent to $2.24 billion from $1.08 billion.
RIM added about 2.3 million BlackBerry subscribers in the quarter, exceeding the 2.2 million additions forecast by the company. Just as important, almost 60 percent of the new subscribers were nonbusiness users, who now count for about 40 percent of RIM's total subscription base, the company said. For RIM to keep growing it needs to expand into the consumer arena and it appears that it has been doing just that.
So why is RIM's share price dropping? RIM shares closed Thursday at $123.46, down by $18.88. The immediate problem is that higher expenses and shrinking margins caused the company to miss the high expectations of analysts. Analysts polled by Thomson Reuters had forecast revenue of $2.27 billion and earnings of $0.85 a share.
The company said the higher-than-expected expenses were due to increased marketing costs in advance of new product launches such as the BlackBerry Bold, a 3G (third-generation) device packed with multimedia features and expected to be released over the next two months.
RIM's forecast for current-quarter revenue is in the range of $2.55 billion to $2.65 billion, and earnings in the range of $0.84 to $0.89 a share. Analysts have been expecting revenue of $2.43 billion and earnings of $0. 90 per share.
Though the company faces competition from Apple and others, the BlackBerry has a solid reputation and many analysts are still taking the long view.
"RIM hit a speed bump which has affected their stock price, but if we look out a year and beyond I think the company will continue to do well, although competing fiercely with new devices and competitors, " according to an e-mail from telecom analyst Jeff Kagan.
Meanwhile, words of caution from Oracle about a potentially tough quarter coming up, the traditionally slow summer season in the U.S. and Europe, helped put a damper on tech stocks.
Chief Financial Officer Safra Catz Wednesday forecast a revenue increase of between 18 percent to 20 percent, which would mean $5.51 billion in sales at best. Though that is within current analyst expectations for revenue of $5.47 billion, it is not near the 35 percent jump in sales that happened during the quarter last year, which apparently is a letdown to traders. Oracle closed Thursday at $21.42, down by $1.13.
This past quarter was strong for Oracle, though, validating the various acquisitions it has made over the last few years. The company generated revenue of $7.2 billion, a 24 percent rise compared to the same quarter last year, and a net income jump of 27 percent, to $2 billion.
The big acquisition news of the week was Nokia's Tuesday announcement that it plans to acquire all of Symbian, the developer of operating systems for mobile phones. The company, based in Finland but trading in the U.S. on the New York Stock Exchange, owns about 48 percent of Symbian and will pay $410 million for the rest of the company.
Also Tuesday, companies including Nokia, Motorola, and AT&T announced that they will partner and work to make the Symbian OS open source. The potentially game-changing series of events for the mobile device world excited investors, who pushed up Nokia shares in the U.S. to $26.10 Tuesday, up by $1.44.
