Earnings News and Price Increases

Advanced Micro Devices Inc. (AMD), IBM Corp., Intel Corp., Microsoft Corp., and Nokia Corp. announced their quarterly financial results. Of the set, only AMD had bad news to report. In other news, Oracle Corp. and SAP AG stated they were raising their fees for ongoing support and customer service.

Focal Points:

• Intel posted record second quarter revenues of $9.5 billion, an increase of nine percent year-over-year. On a generally accepted accounting principal basis (GAAP) quarterly net income was $1.6 billion, up 25 percent from the second quarter of the previous year. Meanwhile, AMD reported its seventh consecutive quarter of red ink, recording a loss of $1.19 billion – almost equal to Intel's profits. AMD's revenues for the quarter were $1.35 billion. Most of AMD's losses came from a $920 million write-off for discontinuance of its ATI Consumer Electronics division's operations. To reflect a change in strategy, AMD has opted for new leadership and has replaced its CEO with COO Dirk Meyer taking the helm. On the positive side, Nokia reported net sales of EUR 13.2 billion for its second quarter and a better-than-expected net profit of EUR 1.1 billion.
• IBM showed strong second quarter results with total revenues for the quarter of $26.8 billion, an increase of 13 percent from the year ago quarter. On a GAAP basis net income for the quarter was $2.77 billion compared with $2.26 billion in the year ago quarter. Technology services grew 15 percent to $10.1 billion, and business-consulting revenue rose nearly 18 percent to $5.11 billion. New service contracts jumped 12 percent in the second quarter to $14.7 billion. Software revenues increased 17 percent while system revenues were up 10 percent. The System z mainframe revenues grew by 32 percent, reflecting the first full quarter of System z10 sales. Meanwhile, Microsoft announced fourth quarter revenues of $15.8 billion, up 18 percent from $13.4 billion in the year-ago quarter. On a GAAP basis its net income jumped 42 percent to $4.3 billion from $3.0 billion in the same quarter. Last year's quarter was hurt by more than $1 billion in charges related to defective Xbox game consoles. Revenues from the Windows operating system, Office programs and server software rose 18 percent to total $7.9 billion. Additionally, Microsoft sold more than 40 million Vista licenses in the quarter.
• SAP stated that effective Jan. 1, 2009 it would raise its annual maintenance fee from 17 percent of the license fees to 22 percent. The price increase would be phased in over four years. In exchange, customers will receive enhanced service, including 24 hour support and problem identification and resolution help for third-party software that interacts with SAP software, company officials claimed. In June Oracle released an updated price list including a 15 to 20 percent increase for software prices in the U.S. Prices in Europe remained unchanged while they dropped in some other parts of the world. In other related news, a Goldman Sachs Group survey of IT executives found technology budgets remained stagnant.

Experton Group believes revenues and profits for the technology firms will be more constrained in the second half of the year, as corporations struggle with the global economic slowdown and inflationary pressures. Executives can expect more IT providers to attempt to raise their prices and rates, as they strive to keep their margins up. IT executives should take advantage of the shifting trends and negotiate more aggressively with an emphasis on forward-leaning terms and conditions.