Microsoft's Miss Threatens the Dow's Record Rally
Earnings season usually involves individual-company news that's important for that particular stock, but not necessarily for the market as a whole. But when industry giants report especially disappointing results, it can have a ripple impact on the entire stock market, and that's what we've seen today from Microsoft . When you combine poor earnings news with the troubling news from Detroit that the city had filed what will be the largest municipal bankruptcy proceeding ever, it's not surprising to see the Dow Jones Industrials pull back modestly from its recent record levels. As of 10:35 a.m. EDT, the Dow was down 24 points, while the tech-heavy Nasdaq Composite fell somewhat more sharply.
Microsoft's bad news came yesterday afternoon after the market closed, but the impact has been extensive, with the stock down 9%. The company missed estimates on both earnings and revenue by substantial margins, as falling revenue from its cash-cow Windows division reflected the big plunge in PC demand that has plagued the industry lately. At the same time, discounts on its Surface RT tablet forced the company to take a $900 million writedown. In response, multiple analysts cut their ratings on the stock. To keep the move in perspective, even after today's losses, the stock is still up almost 20% on the year and, in the long run, the real question for the company is whether its restructuring and its efforts to bolster newer product and service lines will bear as much fruit as its long-lived PC-based franchises have.
On the other side of the spectrum, though, was General Electric , which gained almost 5%. Second-quarter profits climbed less than 1%, on a 4% drop in sales, but GE noted an improvement in the U.S. economy that it expects will result in profit growth during the second half of 2013. In particular, the company's energy business showed sales strength, as an improving environment for domestic drilling helped boost GE's oil-and-gas drilling equipment business. In all, the report confirmed the success of GE's broad strategy, and showed promise for the future.
Finally, outside the Dow, Advanced Micro Devices plunged 17% after reporting last night that it lost money in its second quarter. Like Microsoft, AMD has suffered from falling PC demand for a long time, and in the wake of Intel's equally disappointing report on Wednesday, investors once again called into question the company's strategy of focusing on gaming consoles. Despite AMD's assurances that revenue would rise by 22% sequentially in the current quarter, projections for falling margins aren't giving investors much reassurance about its long-term prospects.
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The article Microsoft's Miss Threatens the Dow's Record Rally originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Intel. The Motley Fool owns shares of General Electric, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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