Austria's Fekter takes hard line on more Greek aid

1 of 2. Austrian Finance Minister Maria Fekter speaks to journalists during an interview in the western Austrian village of Alpbach August 28, 2013.

Credit: Reuters/Dominic Ebenbichler

By Michael Shields

ALPBACH, Austria | Wed Aug 28, 2013 6:07pm BST

ALPBACH, Austria (Reuters) - Greece must meet terms of its existing international bailout before it can hope for any more external aid, Austrian Finance Minister Maria Fekter said on Wednesday, taking a hard line before Austrian national elections next month.

"Before it comes to additional help, I will surely demand compliance with the (existing programme's) terms," she told Reuters in an interview.

She declined comment on the potential extent of more aid until international lenders get a report back on how well Athens has met current loan terms, noting Greece was well behind its original target to raise 50 billion euros via privatisations.

German Finance Minister Wolfgang Schaeuble has said an estimate by the International Monetary Fund that Greece will need an additional 11 billion euros to see it through to 2015 was "not completely unrealistic".

Schaeuble provoked a storm last week when he said more explicitly than before that Greece would need a third bailout, going much further than Chancellor Angela Merkel had done. The government then sought to play down his remark.

Fekter, a conservative hardliner under fire from opposition parties for euro zone bailouts before elections on September 29, would not comment on the 11 billion figure or say whether Austria could accept a writedown on Greek sovereign debt as a way to give Athens more breathing room.

"I will not comment on that because that is fantasising about something that is not now on the table," she said.

Fekter said the summer months appeared to mark a turning point for the fortunes of the broader euro zone economy even though some countries still faced difficulties.

"In Italy we have a strong north/south divide but this is nothing new. There have to be structural reforms here to narrow this divide," she said.

Asked about neighbouring Slovenia's delays in setting up a "bad bank" to handle toxic assets in its financial sector, Fekter said the former Yugoslav republic had so far managed to resolve on its own the sector's problems.

"The Slovenians - at least the finance minister - have the will to reform. We will see if he gets this through. It is good for us as a neighbouring country if Slovenia can achieve on its own stability in its financial sector again."

Asked if she were optimistic Slovenia could manage without resorting to outside help, she said:

"We will of course support the Slovenians as much as possible. So far they have done well at crisis management."

(Reporting by Michael Shields; editing by Stephen Nisbet)

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Microsoft takes $900 million hit for unsold Surface RTs in 4Q13 earnings

An otherwise healthy earnings statement from Microsoft was overshadowed by a substantial $900 million charge attributed to "Surface RT inventory adjustments." The ARM-powered tablet, Microsoft's first foray into selling computers, recently had its price cut by $150 to $349 amid long-standing reports of poor sales. With this $900 million charge, those poor sales and price cuts are hitting Microsoft's bottom line.

Revenue for the fourth quarter was $19.896 billion, up 10 percent on the same quarter last year. Operating income was $6.073 billion and earnings per share $0.59, both essentially unchanged from a year ago.

As ever, Microsoft also published non-GAAP numbers. The GAAP numbers defer revenue that was taken for Office 2013 and Windows 8 prior to the availability of the software, not booking the revenue until the software is actually delivered. The non-GAAP numbers book the revenue as soon as it's taken. Under that metric, quarterly revenue was $19.114 billion, up three percent year on year. Operating income was $5.291 billion, down 24 percent year on year, and earnings per share were $0.52, down 29 percent on a year ago.

For the full 2013 financial year, revenue was $77.849 billion, up six percent on 2012. Operating income was $26.764 billion, an increase of 23 percent, and earnings per share were $2.58, a 29 percent improvement. Much of this improvement is due to 2012's $6.193 billion write-down over the aQuantive purchase.

Though Microsoft has announced a significant corporate reorganization, its financial reporting uses the same divisional model and could continue to do so even as the reorganization is implemented. Full details of this will be disclosed in September.

Windows division revenue—which includes Surface RT—saw the fourth quarter grow by six percent to $4.411 billion, with operating income down 54 percent to $1.099 billion. For the full year, the division had revenue of $19.239 billion, up 4.6 percent, and an operating income of $9.504 percent, down 18 percent.

The division continues to suffer from the downturn in the broader PC market. OEM revenue was down 15 percent, driven by the decline of x86 sales. Non-OEM revenue was up 22 percent, with double-digit growth in volume licensing. The company says that close to three-quarters of enterprise desktops are now using Windows 7.

The Server and tools division posted quarterly revenue of $5.502 billion, up nine percent year on year. Operating income was $2.325 billion, up 14 percent. For the full year, revenue was $20.281 billion, up nine percent on 2012, and operating income was up 13 percent at $8.164 billion.

Both product revenue and Enterprise Services showed nine percent growth. System Center showed growth of 14 percent, SQL Server increased revenue by 16 percent. The company reports growing Azure momentum, too, with 25 percent more enterprise customers.

Microsoft Business Division had quarterly revenue of $7.213 billion, up 14 percent, with operating income of $4.873 billion, an increase of 18 percent. Over the full year, revenue was up three percent to $24.724 billion and operating income was up two percent to $16.194 billion.

Business revenue, representing about 85 percent of the division's revenue, was up seven percent. Business subscription revenue was up 10 percent, offsetting a one percent drop in license-only transactional revenue. Consumer revenue was hammered, however, falling by 27 percent due to the weakness of the x86 market. Office 365 is now on track to have annual revenue of $1.5 billion, with more than one million users of the consumer-oriented Office 365 Home Premium version. Exchange, SharePoint, and Lync all experienced double-digit growth.

Online Services division revenue for the quarter was $0.804 billion, up nine percent on the same quarter last year. Operating loss was $0.372 billion. The loss a year ago was $6.672 billion, but most of this was due to the aQuantive write-down. Excluding that, the loss has been reduced by $0.107 billion, or 22 percent. Full year revenue was $3.201 billion, up 12 percent.

Entertainment and Services division had quarterly revenue of $1.915 billion, up eight percent on last year. The division posted an operating loss of $0.110 billion, a 57 percent reduction on last year. Full year revenue was $10.165 billion, up six percent on 2012, with operating income of $0.848 billion, up 123 percent from last year.

Even as it heads toward replacement, Xbox 360 is continuing to sell, with the company shifting a million units last quarter. Xbox LIVE revenue was up by about 20 percent. Windows Phone-related revenue, covering both Windows Phone and patent licensing agreements, was up $0.222 billion.

The company also offered guidance for the first quarter of the 2014 financial year. Windows division will continue to suffer from the poor PC market, with OEM revenue (about 65 percent of what the division turns over) expected to decline by the mid teens. Server and Tools revenue is expected to grow by high single digits. Business division enterprise revenue is anticipated to grow by mid-single digits, but consumer revenue will lag the PC market by five percent. The company estimates that Online Services revenue will grow by double digits. Entertainment and Devices revenue will decline by low single digits.

The quarterly and full year results for the Business and Server divisions were both strong. Online Services continues to lose money, though it's losing less each quarter. Entertainment and Devices seemed to perform decently, considering the age of Xbox and the significant seasonal variations it experiences. Setting aside the Surface adjustment, even the Windows division performed reasonably well, considering the general malaise of the PC market.

But that Surface adjustment is huge. The company said that it's for Surface RT and related parts and accessories. We don't know the exact breakdown of the $900 million figure. Worst case, it implies that the company has six million Surface RTs ($900 million divided by $150 price cut per unit) sitting unsold. The true number may be a little lower, due to some of the hit coming from parts and accessories. But Microsoft is still sitting on several million—perhaps as many as five—Surface RTs.

That the company is struggling to sell them is perhaps not so surprising. The value proposition of the Surface RT was never clear. For those who wanted an out-and-out tablet, the Nexus 10 and iPad were in the same price ballpark but with much richer ecosystems. For those who really wanted Windows software, Atom-powered devices provided a lot more compatibility and a bit more performance, again with prices in the same ballpark. Surface RT was stuck awkwardly in the middle.

What is surprising, however, is that the company so grossly overestimated demand for the product that it apparently had its manufacturers build many millions, such that it would then have to write down the value of millions of units of unsold Surface RT stock. That's a spectacular misjudgment.

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Wall Street falls in early trade as market takes breather

Traders work on the floor of the New York Stock Exchange, July 26, 2013.

Credit: Reuters/Brendan McDermid

By Angela Moon

NEW YORK | Fri Jul 26, 2013 11:13am EDT

NEW YORK (Reuters) - Stocks fell on Friday as the market took a breather from a recent rally that has taken the S&P 500 up about 18 percent for the year and as investors digested major earnings.

Major U.S. stock indexes have advanced steadily this year with the S&P 500 hitting an all-time high earlier this week. The broad market index has ended higher 13 times in the past 16 sessions.

For the week, the S&P is down about 0.5 percent, its first down week in five, but the benchmark is up 4.8 percent so far this month, its best month since January. The Nasdaq is up 5.4 percent in July so far, its best monthly gain in a year and half.

"There were two days this week, Tuesday and Wednesday, when we came strikingly close to the 1,700 (on the S&P 500) but didn't quite move up. There is profit taking here and there as we face this resistance," said Randy Frederick, director of derivatives at the Schwab Center for Financial Research in Cincinnati, Ohio.

The Dow Jones industrial average .DJI was down 70.04 points, or 0.45 percent, at 15,472.20. The Standard & Poor's 500 Index .SPX was down 4.62 points, or 0.27 percent, at 1,681.32. The Nasdaq Composite Index .IXIC was up 0.34 points, or 0.01 percent, at 3,579.94.

Among the top decliners, Expedia Inc (EXPE.O) shares plunged 23 percent to $50.20, a day after the online travel agency reported a quarterly profit far short of market estimates, due to higher competition and poor performance in its discount website, Hotwire.com.

Zynga Inc (ZNGA.O) shares plunged 17.4 percent to $2.89 a day after the company announced it will largely abandon its efforts to build an online gaming business in the United States.

Amazon.com Inc (AMZN.O) shares lost 2.1 percent to $297.14 after its forecast disappointed on income and revenue. Amazon faces with a weaker international market, overshadowing improved profit and economic conditions in the United States.

Starbucks Inc (SBUX.O) shares rose 6 percent to $72.34, a day after the world's biggest coffee chain posted a bigger-than-expected jump in quarterly profit.

As of Thursday's close, 47 percent of the S&P 500 companies reported earnings, and about 68 percent of them have topped profit forecasts, above the historical average of 63 percent. About 56 percent have reported better-than-expected revenue, a rate that is below the historical average.

In M&A news, Vivendi (VIV.PA) plans to sell the bulk of its stake in Activision Blizzard Inc (ATVI.O) to the video games maker and its management for $8.2 billion, the French conglomerate's second blockbuster deal in a week.

Activision shares, one of the most traded in early session, were up 14.8 percent to $17.45.

Data showed U.S. consumer sentiment rose in July to the highest level in six years as Americans felt better about the current economic climate, though they expected to see a slower rate of growth in the year ahead. Market reaction was muted.

European shares edged lower on Friday. Germany's DAX .GDAXI market had already unsettled some investors this week with profit warnings from some of its leading companies. .EU

In Asia, Japan's Nikkei share average slid 3 percent and was near a three-week low on Friday, with blue-chip exporters and financials leading declines on the back of a stronger yen and profit-taking. .T

(Reporting by Angela Moon; Editing by Nick Zieminski)

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Wall Street falls in early trade as market takes breather

Traders work on the floor of the New York Stock Exchange, July 26, 2013.

Credit: Reuters/Brendan McDermid

By Angela Moon

NEW YORK | Fri Jul 26, 2013 11:13am EDT

NEW YORK (Reuters) - Stocks fell on Friday as the market took a breather from a recent rally that has taken the S&P 500 up about 18 percent for the year and as investors digested major earnings.

Major U.S. stock indexes have advanced steadily this year with the S&P 500 hitting an all-time high earlier this week. The broad market index has ended higher 13 times in the past 16 sessions.

For the week, the S&P is down about 0.5 percent, its first down week in five, but the benchmark is up 4.8 percent so far this month, its best month since January. The Nasdaq is up 5.4 percent in July so far, its best monthly gain in a year and half.

"There were two days this week, Tuesday and Wednesday, when we came strikingly close to the 1,700 (on the S&P 500) but didn't quite move up. There is profit taking here and there as we face this resistance," said Randy Frederick, director of derivatives at the Schwab Center for Financial Research in Cincinnati, Ohio.

The Dow Jones industrial average .DJI was down 70.04 points, or 0.45 percent, at 15,472.20. The Standard & Poor's 500 Index .SPX was down 4.62 points, or 0.27 percent, at 1,681.32. The Nasdaq Composite Index .IXIC was up 0.34 points, or 0.01 percent, at 3,579.94.

Among the top decliners, Expedia Inc (EXPE.O) shares plunged 23 percent to $50.20, a day after the online travel agency reported a quarterly profit far short of market estimates, due to higher competition and poor performance in its discount website, Hotwire.com.

Zynga Inc (ZNGA.O) shares plunged 17.4 percent to $2.89 a day after the company announced it will largely abandon its efforts to build an online gaming business in the United States.

Amazon.com Inc (AMZN.O) shares lost 2.1 percent to $297.14 after its forecast disappointed on income and revenue. Amazon faces with a weaker international market, overshadowing improved profit and economic conditions in the United States.

Starbucks Inc (SBUX.O) shares rose 6 percent to $72.34, a day after the world's biggest coffee chain posted a bigger-than-expected jump in quarterly profit.

As of Thursday's close, 47 percent of the S&P 500 companies reported earnings, and about 68 percent of them have topped profit forecasts, above the historical average of 63 percent. About 56 percent have reported better-than-expected revenue, a rate that is below the historical average.

In M&A news, Vivendi (VIV.PA) plans to sell the bulk of its stake in Activision Blizzard Inc (ATVI.O) to the video games maker and its management for $8.2 billion, the French conglomerate's second blockbuster deal in a week.

Activision shares, one of the most traded in early session, were up 14.8 percent to $17.45.

Data showed U.S. consumer sentiment rose in July to the highest level in six years as Americans felt better about the current economic climate, though they expected to see a slower rate of growth in the year ahead. Market reaction was muted.

European shares edged lower on Friday. Germany's DAX .GDAXI market had already unsettled some investors this week with profit warnings from some of its leading companies. .EU

In Asia, Japan's Nikkei share average slid 3 percent and was near a three-week low on Friday, with blue-chip exporters and financials leading declines on the back of a stronger yen and profit-taking. .T

(Reporting by Angela Moon; Editing by Nick Zieminski)

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Wall St. Week Ahead: As Fed takes a backseat, earnings rule market

Wall Street is written on a building in New York's financial district, March 4, 2013.

Credit: Reuters/Brendan McDermid

By Alison Griswold

NEW YORK | Fri Jul 19, 2013 5:56pm EDT

NEW YORK (Reuters) - Wall Street is experiencing its best month since January and looks poised to extend the rally with a deluge of earnings next week, though significant gains may be harder to come by with major indexes at record highs.

Eight Dow components and Apple (AAPL.O) are among the companies that will report in one of the busiest weeks of the earnings season. Some 157 companies in the S&P 500 index will release results.

Second-quarter earnings have been above forecasts so far, but analysts' estimates have dropped precipitously since the start of the year. Earnings for S&P 500 companies are seen rising 2.9 percent, according to Thomson Reuters data, down from an 8.4 percent growth expected at the start of the year. Revenue is seen growing 1.1 percent.

Still, stronger-than-expected reports spurred gains in IBM (IBM.N), General Electric (GE.N) and others. In addition, Wall Street banks Citigroup, Goldman Sachs and Morgan Stanley reported strong earnings.

For this week, the Dow rose 0.5 percent, the S&P added 0.7 percent and the Nasdaq fell 0.3 percent. The benchmark S&P is up 18.6 percent for the year.

On the other side of the ledger, Microsoft (MSFT.O) was a big disappointment, and its shares fell 12 percent on Friday. Both Microsoft and Google (GOOG.O) fell short of Wall Street expectations, causing their shares to slump.

Of the 104 companies in the S&P 500 that have reported through Friday, 65.4 percent had earnings above analyst expectations, while 51 percent topped revenue estimates.

EYES ON APPLE

Apple, the second-largest U.S. company by market capitalization, will be watched to see if it can reverse the trend of weaker-than-expected tech sector earnings. The company, which is due to report on Tuesday after the market's close, is expected to show a drop of more than 21 percent in quarterly profit and revenue growth of 0.2 percent.

The Federal Reserve has been the primary driver of the market for a long time. But that should change, at least for a time, after investors were reassured that the Fed would be flexible in the timing of its withdrawal of stimulus measures and would keep interest rates ultra-low for an extended period.

The Fed's stimulus played a major part in the S&P's advance so far this year. Investors now speculate earnings will be the next catalyst to push stocks higher.

"So far it's been about the Fed supporting the movement upwards, but at a certain point there's a handoff, and earnings will have to take over," said Kristina Hooper, head of investment and client strategies at Allianz Global Investors in New York. "Earnings are going to be so critical to the future of the stock market recovery."

Analysts have generally been bullish on 2013's second half, though they have been slowly lowering estimates for the third and fourth quarters to reflect concerns about the economy's growth.

Per-share earnings growth is expected to be 7.8 percent in the third quarter and 12.4 percent in the fourth quarter. That compares with a July 1 estimate of 8.5 percent growth and 13 percent growth, respectively, according to Thomson Reuters data.

NEED FOR REVENUE GROWTH

"Revenue growth is especially important," said David Joy, chief market strategist at Ameriprise Financial in Boston. "If revenues aren't increasing, it's going to be awfully tough for the bottom line to increase."

Joy, who helps oversee about $708 billion in assets, added that it was encouraging to see revenue coming in slightly ahead of expectations.

"My sense is that the markets can hang in there next week," he said. "The trend is to the upside."

General Electric Chief Executive Jeff Immelt said he was bullish on the outlook for the rest of the year, a sentiment echoed by other executives.

But Nick Heymann, an analyst at William Blair & Co, which trades GE shares, said for GE to achieve its goal of boosting 2013 margins by 0.7 percent would "require Herculean improvement in the second half.

With 21 percent of the S&P components having reported, roughly two-thirds have beaten profit expectations, slightly above the historical average. About half of the companies have topped revenue forecasts, a rate better than the average over the past four quarters.

Next week's earnings roster includes Dow components AT&T (T.N), McDonald's (MCD.N) and Boeing Co (BA.N). Ford Motor Co (F.N), Visa (V.N) and United Parcel Service (UPS.N) are also due. UPS, which is viewed as a proxy for business activity, recently cut its outlook, citing a weak U.S. economy and overcapacity in the global air freight market.

Economic indicators next week include sales of new and existing homes. Sentiment among builders remains bullish, though housing starts and permits for future homes hit a 10-month low in June.

"Obviously a big surprise there to the downside will cause a lot of caution," said Andrew Yorks, chief investment officer at Four Wood Capital Partners in New York. "The housing sector's been a core part of what the Fed is focusing on."

June existing-home sales, which are due Monday, are seen rising 0.6 percent compared with a 4.2 percent jump in the previous month. New-home sales for June are also seen rising, according to Thomson Reuters estimates.

(Wall St Week Ahead runs every Friday. Comments or questions on this one can be sent to alison.griswold(at)thomsonreuters.com)

(Reporting by Alison Griswold; Editing by Kenneth Barry)

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