An attempt to rally the stock market failed this afternoon after Microsoft (MSFT, news, msgs) announced 5,000 job cuts and an earnings miss and saw its shares hit an 11-year low.
The Dow Jones industrials finished the day with a loss of 105 points, or 1.3%, to 8,123. Down as much as 271 points in the morning, the index recovered to a loss of just 3 points before fading again. Microsoft, which fell 11.7% to $17.11, contributed 18 points to the Dow's decline. (Microsoft is the publisher of MSN Money.)
The Standard & Poor's 500 Index was off 13 points, or 1.5%, to 828, and the Nasdaq Composite Index was off 41 points, or 2.8%, to 1,465.
Futures trading suggests a flat-to-lower open on Friday. The market may be held back by late selling in shares of Google (GOOG, news, msgs) in after-hours trading.
Google reported a conflicting earnings report. Profits from continuing operations beat Wall Street estimates. Then, the economy proved so bad in the quarter bad that Google felt obliged to write off $1.1 billion in investments in AOL and wireless company Clearwire. And executives warned the recession may well affect its business in the months ahead.
Google shares initially rose sharply on the report. But when the after-hours session ended, the shares had fallen 2.7% to $298.32 from a regular Nasdaq close of $306.50.
At the same time, earnings from Dow component General Electric (GE, news, msgs) are due before the open. GE was up 3.5% today, the best performer among the 30 Dow stocks.
2009: Not a kinder, gentler year so far
In 14 trading sessions in January, the Dow is down 7.5% and has suffered six losses of 100 points or more.That is, believe it or not, an improvement over a year ago when the Dow had seven losses of more than 100 points in 14 days and fell 9.8%.
The S&P 500 is down 8.4% so far this month. If that loss holds, this would be the S&P 500's worst January ever. The Nasdaq, down 4.4%, is looking at its fourth-worst January.
Google has a decent quarter, sees headwinds
Google earned $1.6 billion, or $5.10 a share, in the quarter before the $1.1 billion AOL-Clearwire charge and payments to settle lawsuits by the Authors Guild and the Association of American Publishers. The earnings from continuing operations beat Wall Street estimates by 15 cents a share and were up 15% from a year ago.Adding in the charges brought Google's net income under generally accepted accounting rules to $314.6 million, down from 1.21 billion a year ago.
Google said revenue grew 24.5% to $4.22 billion from $3.39 billion a year ago. The results are after payments to partners are deducted.
Paid clicks were up 18% from a year ago and 10% over the third quarter.
While Google doesn’t offer guidance, CEO Eric Schmidt conceded that business going forward will be tougher. The fourth quarter was the easy part. Now, the company is going into "uncharted territory," he said on an analyst call.
"We don't know how long this period will last," he said. "We obviously hope it will be short. We're certainly prepared to get through this."
Google has been cutting costs over the last six months. Gone was its legendarily glitzy Christmas party, for example. Google has also slowed its hiring. The company hired just 99 new employees in the quarter, and capital expenditures were $368 million. Analysts had expected something over $600 million.
Stock Charts (Year)
Microsoft
Google shares opened for trading at $100 on Aug. 19, 2004, and zoomed to a peak close of $741.79 on Nov. 6, 2007. The shares have fallen about 59% since then.
Microsoft shares at 1998 levels
With their $17.11 close, Microsoft shares finished at their lowest level since January 1998. The company said it would eliminate 1,400 jobs immediately and trim an additional 3,600 jobs over the next 18 months as a slumping economy and reduced spending on personal computers have cut demand for the company's software.The announcement had been rumored for weeks. It is further evidence of the recession’s increasing impact on the technology sector, which first appeared less susceptible to the weakened economy, outplacement firm Challenger, Gray & Christmas said today.
CEO Steve Ballmer said the cuts, which will reduce annual operating costs by $1.5 billion, will come in its research and development, marketing, sales, finance, legal and corporate affairs, human resources and information technology departments.
The Microsoft layoff announcement was part of its second-quarter earnings report, released before the market opened, surprising Wall Street. It had been scheduled for after the close.
Microsoft earned $4.17 billion, or 47 cents per share -- down from $4.71 billion, or 50 cents per share, a year ago. The results missed Wall Street's estimate by 2 cents.
Revenue was up 1.6% from a year ago but missed the Wall Street estimate of $17.08 billion. But Microsoft was like many companies that saw business drop rapidly in the last three months of 2008. It had projected second-quarter revenue at $17.3 billion to $17.8 billion when it announced first quarter.
"We have made long-term investments that continue to pay off," Ballmer said in an e-mail to employees today. "But it is also clear that we are not immune to the effects of the economy." Microsoft saw an 8.1% decline in revenue in its client business, to $3.98 billion from $4.33 billion a year ago. That group includes the various versions of Windows, its flagship operating system and related software.
About 80% of the revenue for the group comes from sales to computer makers.
The decline in the Windows business was the only decline among Microsoft’s five operating groups. But revenue was only barely higher in its Online Services business, which includes the MSN Web business and its Microsoft Business Division, which includes Microsoft Office and related software. Its Entertainment and Devices Division, which includes the Xbox game console business, saw a 3.5% revenue gain to $3.18 billion.
Its Servers and Tools business showed a 14.8% gain in revenue to $3.74 billion. About half of the revenue for the group comes from annual payments from customers under multi-year licensing deals.
Elsewhere, Zune platform revenue decreased $100 million, or 54% -- reflecting a decrease in device sales.
The company did not give any profit or revenue forecasts for the rest of its fiscal year, which ends in June.
"It is pretty bad when things are deteriorating so fast that even the largest companies in the world don't know how rapidly it is happening," said Jefferies analyst Katherine Egbert.
Bank of America tumbles on more turmoil
While Microsoft's announcement cast an immediate pall on the markets, it was not the only factor in the market's decline. Continued turmoil at Bank of America (BAC, news, msgs) pushed financial stocks lower. John Thain, who had merged Merrill Lynch with Bank of America, resigned today at CEO Ken Lewis' request.Thain's standing at Bank of America had declined after Merrill produced much larger than expected losses in the fourth quarter and several key executives quit. Because of those losses, Bank of America reported a $15.3 billion fourth-quarter loss. And the government had to step in with $20 billion in new capital and agreed to share losses on $118 billion in assets.
Stock Charts (Year)
Bank of America
Southwest Airlines
Bank of America was down 14.5% to $5.71, second-worst among the 30 Dow stocks, after Citigroup (C, news, msgs), which was down 15.3% to $3.11.
Not all financial stocks were losers. Money manager State Street (STT, news, msgs), which had fallen 59% on Tuesday, was the S&P 500 leader, up 22.9% to $20.97.
Second among S&P 500 stocks was Southwest Airlines (LUV, news, msgs), up 17.1% to $9.81. The airline reported better-than-expected revenue despite posting a loss for the period because of bad bets on the direction of fuel prices.
Energy stocks came back a bit as crude oil recovered from its lows on the day. Crude was at $43.67 in New York, up 12 cents from Wednesday. Crude had been as low as $40.41. Exxon Mobil (XOM, news, msgs) was off 1.3% to $78.23. Oil services company Schlumberger (SLB, news, msgs) fell 4.4% to $37.37.
There was one bright spot in an otherwise unattractive market. The Dow did briefly drop below 8,000 -- to 7,957 -- and immediately rebounded. The Dow has rebounded quickly after dropping below 8,000 several times in the last few sessions. That is a signal of some buyer support.
Only six Dow stocks showed gains today, along with just 119 S&P 500 stocks and 20 stocks in the Nasdaq-100 Index ($NDX.X). The index was off 18 points, or 1.5%, to 1,168.
| Thur. | Wed. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $43.67 | $43.55 | $0.12 | -2.09% | -2.09% |
| Heating oil (per gallon) | $1.3486 | $1.3860 | -$0.0374 | -4.06% | -4.06% |
| Natural gas (per million BTU) | $4.6810 | $4.7800 | -$0.0990 | -16.74% | -16.74% |
| Unleaded gasoline (per gallon) | $1.0934 | $1.1738 | -$0.0804 | 8.45% | 8.45% |
Intel to close four facilities, cut up to 6,000 jobs
Late Wednesday, Intel (INTC, news, msgs) said it would close manufacturing plants in Malaysia and the Philippines, as well as its only remaining factory in Silicon Valley, cutting as many as 6,000 jobs.Shares were down 3.3% to $12.82.
The announcement comes a day after the world's largest maker of microprocessors used in personal computers slashed prices on a number of its chips and a week after it reported a decline in fourth-quarter revenue.
Intel said it would close two assembly test facilities in Penang, Malaysia, and one in Cavite, Philippines.
It will also halt production at a wafer fabrication facility in Hillsboro, Ore., as well as its facility in Santa Clara, Calif. -- a factory connected to its headquarters and the only Intel manufacturing facility left in Silicon Valley.
Intel ended 2008 with around 84,000 employees.
Strong product sales at Apple
Microsoft's news overshadowed a strong quarterly report from Apple (AAPL, news, msgs) late Wednesday.Apple earned $1.61 billion, or $1.78 per share, for the fiscal first quarter -- up from $1.58 billion, or $1.76 per share, in the same period a year ago. Analysts had been looking for earnings of $1.40 per share.
Sales rose 6.7.% to $10.2 billion, also topping Wall Street's estimate of $9.74 billion.
Apple shares jumped 6.7% to $88.36.
Apple sold 2.5 million Macintosh computers, up from 2.3 million a year ago; iPod sales rose nearly 3% to 22.7 million.
Sales of the iPhone device were very strong, jumping 91% to 4.4 million units.
"They sell a premium product, and if this is truly one of the worst economic backdrops since the Great Depression, this is a huge triumph," Jim Grossman, an analyst at Thrivent Asset Management, told Bloomberg News.
Apple said it expects to earn 90 cents to $1 per share for the current quarter, which ends in March. The forecast is typically modest for Apple, which tends to be conservative with its guidance; analysts are expecting $1.13 per share.
Apple also said revenue will come in at $7 billion for the current quarter.
Apple shares had been hit hard after Chief Executive Officer Steve Jobs last week said he would be taking several months off to focus on his health. The company did not give any information about Jobs' health.
The company is under SEC scrutiny for its disclosures about Jobs' health. Just a week before Jobs announced that he was taking a leave of absence, he had said he had a treatable "hormonal imbalance."
Jobless claims rise; housing starts fall
Data on jobless claims and housing starts added more gloom to the economic outlook today.First-time claims for unemployment benefits for the week ending Jan. 17 rose by 62,000 to 589,000 -- more than economists had forecast and matching a 26-year high.
Last week's number was the same as the one for the week ending Dec. 20, which hit the highest level since November 1982.
"Job losses will continue through the first part of the year and could extend all the way through 2009," Ellen Zentner, a senior U.S. economist at Bank of Tokyo-Mitsubishi, told Bloomberg News.
Housing starts plunged 15.5% in December to a seasonally adjusted 550,000, a record low, the Commerce Department reported this morning.
Starts have plummeted 49% since June.
Building permits fell 12.3% to a record low of 363,000 last month. Home building stocks moved lower. Pulte Homes (PHM, news, msgs) was off 0.5% to $10.55.
Few bidders dim eBay's outlook
Things at online auction site eBay (EBAY, news, msgs) were not great in the most recent quarter.The company late Wednesday said fourth-quarter net income fell 30% to $367 million, or 29 cents per share, down from $531 million, or 39 cents per share, in the same quarter a year ago. Excluding charges, eBay earned 41 cents, 2 cents ahead of the consensus estimate.
Revenue fell 7% to $2.04 billion, missing the consensus estimate of $2.11 billion. Sales in eBay's core business, its auction sites, fell 16%, a blow to the company because that business makes up two-thirds of its revenue.
But revenue from eBay's Skype Internet phone business was up 26% to $145 million. Skype added 35 million users in the quarter, bringing total users to more than 405 million.
Shares fell 12.1% to $11.67.
The company gave a weak forecast for the current quarter, citing the pullback in consumer spending. The company expects earnings between 32 cents and 34 cents per share. Analysts are looking for 40 cents per share for the current quarter.
Nokia profit plunges
Cell phone maker Nokia (NOK, news, msgs) reported fourth-quarter profit down 69% from the previous year. Earnings were 34 cents per share on revenue of $16.5 billion. Both results were well below analyst estimates.The stock fell 10.3% to $12.30.
The company now expects 2009 mobile device sales to fall around 10% from 2008 levels.
Handsets sales are under pressure, forcing Nokia to drastically reduce prices on its phones, squeezing margins as a result. Ironically, the company has seen its market share rise, but increased competition from Apple's iPhone is cutting into its penetration
Andrew Rosenbaum contributed to this report.
| Thur. | Wed. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 0.100% | 0.110% | -0.010 | -13.04% | -13.04% |
| 5-year Treasury note yield | 1.616% | 1.599% | 0.017 | 4.19% | 4.19% |
| 10-year Treasury note yield | 2.594% | 2.526% | 0.068 | 15.60% | 15.60% |
| 30-year Treasury bond yield | 3.250% | 3.138% | 0.112 | 20.77% | 20.77% |
| Currencies | |||||
| U.S. Dollar Index | 86.130 | 86.515 | -0.385 | 4.84% | 4.84% |
| British pound in dollars | $1.3877 | $1.4000 | -0.0122 | -5.81% | -5.81% |
| Dollar in British pounds | £0.7206 | £0.7143 | 0.0063 | 6.17% | 6.17% |
| Euro in dollars | $1.3011 | $1.3057 | -0.0046 | -7.13% | -7.13% |
| Dollar in euros | € 0.7686 | € 0.7659 | 0.0027 | 7.68% | 7.68% |
| Dollar in yen | 88.77 | 89.36 | -0.59 | -2.07% | -2.07% |
| Canadian dollar in U.S. dollars | $0.799 | $0.797 | $0.0024 | -2.32% | -2.32% |
| U.S. dollar in Canadian dollars | $1.253 | $1.255 | -$0.0027 | 2.38% | 2.38% |
| Commodities | |||||
| Gold | $858.80 | $850.10 | $8.70 | -2.88% | -2.88% |
| Copper | $1.3960 | $1.4335 | -$0.04 | -0.99% | -0.99% |
| Silver | $11.4800 | $11.3250 | $0.16 | 0.27% | 0.27% |
| Corn | $3.8750 | $3.9025 | -$0.03 | -4.79% | -4.79% |
| Crude oil (NYMEX) (per barrel) | $43.67 | $43.55 | $0.12 | -2.09% | -2.09% |
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