Financials: The Good, Bad and Ugly

Advanced Micro Devices Inc. (AMD) and SanDisk Corp. reported poor quarterly results, with AMD once again dropping into the red. Microsoft Corp. announced strong quarterly revenues and earnings while its mobile phone partner, Nokia Corp. delivered bleak financial news. In other business news, EMC Corp. produced another quarter of stellar results while PayPal, a subsidiary of  eBay Inc., saw its biggest quarterly growth.

Focal Points:

• AMD reported first quarter 2012 revenues and the red ink was worse than deeper than usual but not as bad as expected. It had revenues of $1.59 billion for the quarter, down only 1.7 percent from the same quarter a year earlier. The company would have posted a profit of $92 million but the restructuring of its relationship with its fabrication partner, GlobalFoundries Inc., resulted in an additional write-off of $703 million. On a GAAP basis AMD posted a net loss of $590 million for the quarter. The Computing Solutions segment, which processors and chipsets for PCs and servers, had flat revenues for the quarter year-over-year while the much smaller Graphics Division saw its revenues year-over-year shrink by 7.5 percent. On the other hand, flash supplier SanDisk delivered revenues in its first 2012 quarter of $1.21 billion, down seven percent over last year's quarter. Net income on a GAAP basis was $114 million, a dive of 49 percent compared to the year-ago quarter. SanDisk had warned of the shortfall. The company claimed the price cuts were necessary because of slumping demand and competitive pressures.
• Microsoft announced strong third quarter results, with all divisions showing growth except for the gaming unit. Total revenues for the quarter were $17.4 billion, up six percent from the previous year's quarter. However, net income contracted two percent over the year-ago quarter to $5.1 billion. For the quarter the Server and Tools Division saw a 14 percent jump in revenues, driven by double-digit revenue growth in SQL Server and more than 20 percent growth in System Center revenue. The Microsoft Business Division reported a nine percent revenue growth for the comparable periods while the Windows and Windows Live Division posted a four percent rise in revenues from the prior year period. The Online Services Division reported a six percent revenue increase from the prior year period, and operating loss improvement of approximately $300 million. The division is on its way to another $2 billion yearly loss. Meanwhile, Nokia posted bleak first quarter financial results.  Nokia lost €1.34 billion (approximately $1.7 billion) on net sales of €7.35 billion in the first three months of this year. Revenues were down almost a third from a year ago, and the company has burned through over €2 billion of its cash reserves in the last six months. Nokia's phones division saw revenues collapse to €4.2 billion from €7 billion in the year-ago first quarter. Smartphone sales fell from 24.2 million units a year ago to 11.2 million units in the first quarter of 2012.
• EMC delivered another impressive quarter. The company reported revenues of $5.1 billion for the first quarter of fiscal 2012 year, a gain of 11 percent over the previous year's quarter. First-quarter GAAP net income increased 23 percent year-over-year to $587 million. Some of the highlights were EMC's mid-tier storage products increased revenue 26 percent year-over-year; Isilon scale-out NAS business nearly doubled its revenue annually; RSA's security business grew revenue 19 percent annually; VMware revenues expanded 25 percent annually (EMC owns an 80 per cent stake); and vBlock customer adoption increased significantly year-to-year. Meanwhile, PayPal, the Internet and mobile payments provider, experienced a 32 percent growth in revenues to $1.3 billion. EBay has expanded PayPal into the mobile payments sector as well as payments to offline merchants. PayPal Here was launched in the U.S., Australia, Canada and Hong Kong. With PayPal Here, small businesses can process almost any form of payment online or offline, including credit and debit cards, checks and PayPal using only a smartphone. Home Depot initiated use of PayPal payments in nearly all of its 2000 U.S. stores. Shoppers can now pay using just their mobile phone number or PayPal payment card and PIN.

Experton Group believes success in IT can be like a zephyr and disappear at a moment's notice, which means no company can sit on its laurels and expect to come out ahead over time. AMD's Computing Solutions segment failed to keep up with Intel Corp. but its acquisition of SeaMicro, and its unique server component technology, may give it a boost and an edge going forward. SanDisk sees growth ahead but profits may prove elusive – even for a player in the hot flash space. Microsoft appears to be breaking out of its long trough.  The upcoming release of new Windows 8 PCs and tablets, the next version of Office, and other new products and services – along with patent royalties – will ensure Microsoft's growth for at least the next 18 months. This may be good for its financial picture and executive management but it may make the company complacent again, just when it needs to shake things up.

The cloud, mobility platforms, and open source all affect the company's business model and Microsoft has yet to address the pending impacts. Nokia has not turned around its business and an expected drive to lower priced products using Windows Phone will not bring an end to the bleeding. As of yet there is not a compelling differentiator in the Microsoft/Nokia smartphones to yield the growth projections both players are counting on. Unless there is a major breakthrough, they will both end up as also-rans. EMC continues to shine – this was the ninth consecutive quarter of growth in excess of 10 percent for revenues and net income. 65-year old CEO Joe Tucci's winning streak has been so impressive that he has decided to not retire at the end of the year and stay indefinitely. For now, one cannot be accused of making a mistake by partnering with EMC. The new PayPal expansion points the way to the future of payments. It adds emphasis to IBM Corp.'s departure from the POS business, which may be topping out as payments shift from cash dispensing terminals to smartphones and other electronic forms. IT executives should be paying attention to the shifting winds and making sure their business and IT strategies are attuned to the market directions. It takes years to turn a ship around; thus, it is important to not travel down an errant path too long. In other words, executives should be transforming their businesses by leveraging cloud, collaboration, e-commerce and social business as the company grows and innovates.