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Apple Sparkles as Others Disappoint

Its profit jumps 48% while Intel's sinks. Concerns of slowing growth persist at EBay.

July 20, 2006|Terril Yue Jones and Dawn C. Chmielewski | Times Staff Writers

Chip giant Intel Corp. posted its biggest quarterly profit drop in more than four years Wednesday as Silicon Valley continued to ride out a rough summer. Only Apple Computer Inc. offered a little sunshine in a week of otherwise dreary earnings.

That left investors waiting for online titan Google Inc. to chase the clouds away when it releases its second-quarter results today.

As Intel reported falling sales and sinking profit in its second quarter, Apple surprised Wall Street with a 48% jump in net income fueled in part by more shipments of Macintosh computers than expected in its fiscal third quarter. Macintosh shipments were being closely watched to predict whether Apple can weather slowing sales of its blockbuster iPod music player.

Also Wednesday, online auctioneer EBay Inc. posted solid revenue gains that nonetheless failed to alleviate concerns of slowing growth. EBay shares jumped in after-hours trading, though, after the company announced plans to buy back as much as $2 billion of its stock.

Shares of Yahoo Inc., meanwhile, plummeted 22% in the wake of the online portal's revelation Tuesday that it would delay the rollout of a new search-based advertising system. The plunge was the deepest one-day drop in Yahoo's history and wiped out $10.4 billion of shareholder wealth -- more than the market value of Intel archrival Advanced Micro Devices Inc.

The pressures facing online companies like Yahoo, EBay and Google differ from those squeezing traditional manufacturers like Intel and Apple. But their travails are combining and colliding like weather fronts. The result: stormy stocks.

"For the Internet space so far, the second quarter is seasonally a slower period," said Crown Global Capital analyst Martin Pyykkonen. "This is the time you want to look to be buying some of the stocks. They generally have a stronger trend ... into the fourth quarter."

Few were as sanguine about Intel's prospects.

Profit at the world's biggest chip maker fell 57% to $885 million, or 15 cents a share. Revenue was $8 billion, down 13%. Analysts surveyed by Thomson Financial had estimated Intel would earn 13 cents a share on sales of $8.26 billion. Excluding expenses for share-based compensation, Intel earned $1.1 billion, or 19 cents a share.

Intel shares, which gained 28 cents to $18.49 in regular trading, lost 24 cents in after-hours trading. Intel shares have fallen 26% this year.

"With a likely price war pending between Intel and AMD ... lower pricing may lead to increased sales volume for Intel toward the end of the summer," said Michael Cohen, research director for Pacific American Securities. "You're going to see a lot of sales but see lower profits."

Apple, meantime, said earnings rose 48% to $472 million, or 54 cents a share. Revenue rose 24% to $4.37 billion.

Apple shares, which gained $1.20 to $54.10 in regular trading, soared $4.72 after hours.

"Just three weeks ago, people were saying PCs were slowing everywhere, hurting Apple, which wasn't true, and that iPods were finished, which also wasn't true," said Jane Snorek of FAF Advisers. "With expectations so low, it's no surprise the stock rose like it did. We've been baffled why it's been sinking like a stone."

Few were scratching their heads over Yahoo's fall.

Shares fell $7.04 to $25.20 a day after the company reported disappointing earnings and issued a full-year forecast that some analysts called uninspiring. Others said it appeared overly ambitious given the lost momentum in search-advertising revenue in the second quarter as well as the delay of a new advertising platform.

"At the end of the day, a one-quarter delay will not make or break the company," UBS Investment Research analyst Ben Schachter wrote in a research note. "But it justly diminishes investors' confidence in management's ability to execute."

Some of the same concerns dogged EBay. The San Jose company reported a 14% drop in net income of $250 million, or 17 cents a share, compared with $291.6 million, or 21 cents, a year earlier. Excluding stock-based compensation of $60 million, net income would have increased 6% from a year earlier to $310 million, or 22 cents a share. EBay posted revenue of $1.41 billion, up 30%.

"We've had a number of concerns at EBay for the last two years, about slowing growth in their core business," said Derek Brown, an analyst at Pacific Growth. "We saw very little in this quarter to alleviate those concerns."

EBay Chief Executive Meg Whitman said the company was working to revitalize its online marketplace and that it planned to buy back $2 billion worth of stock over the next two years.

EBay shares lost 66 cents to $25.93 in regular trading but rose $1.46 after hours.

Times staff writer Chris Gaither contributed to this report.

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