Google beats estimates, acknowledges uncertainty

(MarketWatch) -- Google Inc. on Thursday posted a first-quarter profit that beat analysts' estimates thanks to continued spending by search advertisers and a clampdown on costs, helping bolster the impression that the company is weathering the economic downturn relatively well.

But while Google's shares rose immediately after the earnings announcement, they turned lower in late trading as investors absorbed news of the company's first-ever sequential decline in net revenue since it went public, and heard Chief Executive Eric Schmidt acknowledge that he sees no end in sight for the recession.
Mountain View, Calif.-based Google said its first-quarter net income rose to $1.4 billion, or $4.49 a share, from $1.3 billion or $4.12 a share in the same period a year earlier. The company said net revenue for the period ended in March came in at $4.07 billion. Excluding special items, Google said earnings for the quarter were $5.16 a share.

Analysts on average had expected Google to post earnings excluding special items of $4.93 a share and $4.08 billion in net revenue, according to data from Thomson Reuters.

The size of the difference between Google's actual profit and Wall Street estimates was a surprise, according to Signal Hill Capital Group analyst Todd Greenwald. "It was definitely better than expected on the bottom line," he said.

Schmidt, during a conference call, said that "Google had a good quarter," though he allowed that it's nonetheless "absolutely feeling the impact" of the down economy. The chief executive added "we don't know exactly when" the economy will turn around, while his finance chief, Patrick Pichette, cautioned the company won't necessarily be able to hold costs so low in future quarters.

Google's capital expenditures in the first quarter were $263 million, a significantly smaller portion of its sales than in prior periods. But Pichette called the quarter "the perfect illustration of the lumpiness of our [capital expenditures]," warning analysts against expecting the company to report such modest costs in coming periods.

While Google's net revenue rose compared with the period a year earlier, it also declined from the $4.2 billion reported in the prior period -- marking the first sequential decline since the company went public in 2004. That indicates that while it's held up during the recession better than many peers, Google is also seeing its business affected.

Shares of Google fell slightly to $388 in after-hours trading.

'Very, very conservative'
Google said its paid clicks, or the number of times users clicked on an advertisement and generated revenue for the company, grew 17% in the quarter compared with the period last year.

That beat many analysts' estimates, though Signal Hill's Greenwald noted a growing discrepancy between high paid-click growth and slowing revenue growth, indicating that the prices advertisers are paying per keyword on Google's search service are declining.

While advertisers may want to spend less, Google also indicated that it remains committed to austerity amid the downturn.
Schmidt noted that while Google finished the quarter with nearly $18 billion in cash and equivalents on its books, it is in no hurry to spend it. "Our view at the moment is to remain very, very conservative, and I don't think that will change any time soon," he said.

Pichette, however, emphasized that Google will continue to invest heavily in its core businesses -- and likely more heavily, in some respects, than it did in the first quarter. A project building a new data center in Finland, for example, was only temporarily halted during the quarter by the cold weather in that country, the finance chief said.


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Toshiba Posts Smaller-Than-Forecast Operating Loss

(Bloomberg) -- Toshiba Corp., the world’s second- largest maker of flash memory chips, posted a smaller operating loss than the company had forecast after production cuts helped ease a glut and drive up prices of the semiconductors.

The operating loss, or sales minus the cost of goods sold and administrative expenses, was 250 billion yen ($2.5 billion) in the year ended March 31, or 11 percent smaller than the company’s previous 280 billion yen loss projection, Tokyo-based Toshiba said today in a preliminary earnings statement.

The results stoked speculation that production cuts are helping reduce the excess supply that’s driven memory chipmakers to record losses. Prices of flash memory chips, which store songs and data in portable musical players and digital cameras, have surged 75 percent since Jan. 29, when Toshiba last made its earnings projections.

“Flash-memory chip prices can sustain these levels for the time being as long as chipmakers continue to scale back production,” Yuichi Ishida, an analyst at Mizuho Financial Group Inc., said by phone today. “Demand for the chips themselves isn’t likely to rise soon because demand for mobile phones and digital cameras is still weak.”

Toshiba rose 3.8 percent to 330 yen at 12:57 p.m. on the Tokyo Stock Exchange. The preliminary results are in line with figures reported by the Nikkei English News earlier today. The company will have a press briefing at 3 p.m. Tokyo time.

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