The week's news: Tech earnings ride high

Leading high-tech companies Intel, Apple, and Excite head a flurry of firms reporting better-than-expected earnings.

6 min read
Leading companies like Intel, Apple, and Excite headed a flurry of high-tech firms reporting better-than-expected earnings. Sun and Compaq squeaked past analysts' estimates, in a week that also saw a welcome interest rate cut from the Federal Reserve.

In Washington, several bills closely watched by the high-tech industry made it into the omnibus budget appropriations bill, including one that will prompt an immediate Constitutional challenge from civil libertarians.

Tech earnings ride high
On Tuesday, chipmaking giant Intel reported record quarterly revenues of $6.7 billion, a 9 percent increase over year-ago figures, and net profits of $1.6 billion, or 89 cents a share. Analysts had expected the Santa Clara company to post earnings of 80 cents a share.

Although the results were basically the same as a year ago, the results were Intel's best for 1998 and quite a change from the first quarter. In April the company faced oversupply problems and said it would cut some 3,000 jobs, but this week Intel said it may have trouble meeting demand. (Intel is an investor in CNET: The Computer Network, publisher of News.com.)

Even though its year-on-year revenues fell, Apple Computer rocketed past expectations, earning 68 cents per share for the latest quarter to top Wall Street estimates by 19 cents. Moreover, the company's third consecutive quarter in the black ensured its first profitable year since 1995.

Sales of Apple's iMac, a low-cost, all-in-one desktop, were key to the company's latest results. Apple sold 278,000 iMac units in North America, Europe, and the United States in the product's first six weeks, and three of every ten customers were new to the market while about 12.5 percent of buyers were "Wintel" users, according to Apple.

Internet portal Excite posted a loss of $6.8 million, or 14 cents a share, but excluding acquisition-related costs, the company made a net profit of $1.3 million, or 2 cents a share. Wall Street had expected the company to lose 2 cents a share.

Excite would have posted its first-ever quarter in the black, but for an accounting charge of $7.6 million, or 14 cents a share, amortizing the cost of a content-sharing deal with Netscape. The cost had originally been written off in the previous quarter as a one-time charge, but its accounting was revised after discussions with the Securities and Exchange Commission and will now be spread out over the next two years.

Compaq and Sun Microsystems posted earnings of 7 and 29 cents a share, respectively, each besting analysts' estimates by a penny. Compaq's net profit was substantially down from the same quarter a year ago, while Sun's numbers reflect the purchase of NetDynamics, an application server software company.

Last week, both Advanced Micro Devices and Yahoo blew past estimates.

Notwithstanding the earnings surprises, some of these issues lost ground in trading, until Thursday's unexpected cut in the federal interest rate propelled the Dow Jones Industrial Average to its third largest gain in history. The tech-heavy Nasdaq Composite Index actually outgained the Dow on a percentage basis.

How things change
Intel made a $500 million equity investment in Micron Technology, as part of its strategy to support the development and supply of next-generation memory products while also accelerating the adoption of Direct RDRAM, a high-speed memory interface technology developed by Rambus.

Alcatel became the latest telecommunications equipment provider to jump into data-based networking, snagging gigabit-speed start-up Packet Engines in a $315 million cash deal, the latest example of consolidation in what was once a high-flying segment of the market.

Fish-oil processing and food service company Zapata canceled plans to acquire or invest in 31 Internet companies. The company had intended to make its entry into the high-tech industry by creating a portal.

Media Metrix and RelevantKnowledge agreed to merge in a bid to create a Web usage ratings service that would rival the influence of television audience assessor Nielsen Media Research.

Wal-Mart filed a lawsuit against Amazon.com, venture capital firm Kleiner Perkins Caufield & Byers, Drugstore.com, and others, alleging "wholesale raiding of its proprietary and highly confidential information systems ? through the use of former Wal-Mart associates." The lawsuit is one of the most tangible signs yet of a battle brewing between brick-and-mortar stores and emerging Internet companies.

Chipmaker LSI will cut approximately 1,200 jobs, or about 17 percent of its workforce.

How low?
IBM launched a renewed effort for the consumer notebook market with the introduction of new "I" series ThinkPads. Prices start at $1,499 for systems with high-quality, active-matrix screens.

Compaq released a $699 Internet PC, in an effort to drive down prices still further and thus undercut the Internet-centric iMac and consumer PCs from Hewlett-Packard.

For its part, Apple introduced an upgraded version of the Macintosh operating system. Mac OS 8.5 features a improved file and Internet search functionality dubbed "Sherlock."

Microsoft described its Impala Project, an effort to tailor its Windows NT corporate operating system for use in real-time settings. Separately, the company gave the clearest indication yet that its popular Office suite of productivity applications and its lesser-used BackOffice suite of server apps is increasingly becoming one package. "Office and BackOffice together are becoming a platform in and of itself," a Microsoft executive said.

Network Associates and Axent each announced new versions of their Windows NT firewalls. Both products were acquired from in the last 10 months.

What's what in chips
Chipmakers described their plans for upcoming versions at the Microprocessor Forum. Intel provided the first concrete details of its initial 64-bit chip, dubbed Merced, while also announcing a low-cost 64-bit chip to come later. The 64-bit platform is key to Intel's future strategy for competing in the enterprise computing market.

Advanced Micro Devices outlined its next-generation K7 chip. Among other features, the K7 will run at 500 MHz and higher and use a new technology for the system bus.

IBM announced its new PowerPC 405 chip, a speedier successor to the PowerPC 401 chip that's used in handheld electronic devices.

National Semiconductor subsidiary Cyrix is expanding its lineup for the sub-$1,000 computer and Internet appliance markets. By next year, it will be marketing four distinct classes of processors that will be suited for everything from low-cost multimedia PCs to DVD players and TV set-top boxes.

How tech did in DC
A handful of bills pushed by the high-tech lobby were bundled into a $500 billion-plus federal spending bill that would provide for fiscal 1999.

Items such as the Workforce Improvement and Protection Act (which increases the number of special H1-B visa for skilled foreign workers) and the Internet Tax Freedom Act (which creates a three-year moratorium on "discriminatory" levies) are popular with Silicon Valley interests.

So is the Securities Litigation Uniform Standards Act, which requires that large-scale shareholder lawsuit be filed only in federal courts. That bill made it through Congress on its own and will likely be signed by President Clinton.

But the spending bill is double-edged sword for civil libertarians, as it also includes the controversial Child Online Protection Act. The bill requires commercial Web site operators who offer "harmful" material to check visitors' identifications or face fines or prison. Free-speech groups already plan to file a lawsuit.

The House and Senate could vote on the omnibus spending bill as late as Tuesday. President Clinton is expected to sign the legislation.

Also of note
Infoseek released details about its deal with Walt Disney, indicating the agreement had been in the works since February ? The AltaVista search engine is emerging as a cornerstone to Compaq's Internet efforts ? Navigator increased its lead over Internet Explorer as the primary browser used in North American corporations ? A privately held Canadian company began marketing Tuvalu's country code designation, hoping that major television companies and others will want a Web site address that has a ".tv" ending.