Financial News

  • 22 July 2013, 6:12

Google And Microsoft In Mobile Device Struggle

Tech giants Google and Microsoft have seen significant share price slides, hours after they revealed worse-than-expected second quarter results.

The market sell-off saw Microsoft lose more than 11% in Friday trades, while Google's share price, which was down nearly 4% earlier in the day, recovered to finish 1.55% down.

The negative sentiment occurred after the results showed both firms struggling to adapt to a small-screen, mobile world.

Although Google was a trendsetter for desk-based computer searches, it now appears to have hurdles with advertising amid the technological transition to smartphones and tablets.

The devices pose a financial challenge for Google because their smaller screen sizes fetch lower ad rates than the marketing spend made on traditional desktop and laptop computers.

Google's average ad rate fell by 6% from the same time last year during the three months ending in June.

It marks the seventh consecutive quarter that Google's average ad price, or cost per click, has fallen from the previous year.

The magnitude of the declines had eased in each of the previous three quarters, raising hopes that the worst was over.

Instead, things deteriorated from the 4% decline in ad rates posted during the first three months of the year.

Google earned $3.2bn (2bn) in the quarter, up 16% from $2.8bn (1.81bn) a year earlier, with gross revenue up 19% to $14.1bn (9.2bn).

But after subtracting Google's ad commissions, revenue stood about $275m (180m) below analyst projections.

Meanwhile, Microsoft also missed forecasts and struggled to ship one million Surface tablets in each of the last two quarters and has a meagre 2% of the market's share.

Microsoft's revenue grew 10% to $19.9bn (13bn), with a net income between April and June of $4.97bn (3.2bn), but it incurred a $900m (590m) write-down over the poor sales of Surface.

The results came a week after the company announced a major reorganisation to help it transform into a "devices and services" company that is less reliant on providing software for personal computers.

The quarterly profit missed by Microsoft was the most in a decade and raised new questions as to whether the transition will succeed.

Both Windows 8 and the Surface tablet represent Microsoft's big bets on the tablet computer market as PC sales continue to decline.

Research firms IDC and Gartner said last week that global PC shipments fell 11% in the April-June quarter - the fifth consecutive quarterly decrease.

Acknowledging the company's difficulties with the change, Microsoft chief financial officer Amy Hood told investors that "this journey will take time".

On Thursday both IBM and chipmaker Intel reported their own struggles amid a decline in PC sales.

Advertisement