Tej Kohli Business Blog

Stocks finished modestly lower Friday, as weak New York state manufacturing and consumer sentiment reports and disappointing results from Best Buy did little to encourage buyers ahead of the long holiday weekend.

The tech sector closed lower despite big gains for Priceline.com and Brocade on their quarterly results, as slowdown fears and a chilly reception for NetSuite’s first public earnings report weighed on the sector.

Priceline shares soared 21% after the company beat estimates, and Brocade was up 13% on its results and an upgrade.

But NetSuite fell 10% after its first earnings report as a public company left investors fretting about decelerating growth. The company said it expects to grow sales more than 40% this year, in line with Wall Street expectations but less than last year’s 55% growth rate.

Best Buy fell 2.5% after lowering its 2008 earnings forecast amid softening demand, which weighed on shares of Amazon.com.

Hittite Microwave and Arris Group lost more than 30% on their results.

Intel, Cisco and Apple were among the tech leaders trading lower on the day.

HP gained 1.4% ahead of its earnings report due out after the close on Tuesday. Analysts are looking for 10% sales growth to $27.6 billion and earnings of 81 cents a share, according to Thomson Financial. The report will be a critical one for analysts trying to assess the health of IT spending.

The Nasdaq lost 10 to 2321, the S&P added 1 to 1350, and the Dow slipped 28 to 12,348. Volume declined to 3.58 billion shares on the NYSE, and 2.05 billion on the Nasdaq. Decliners led by a 18-14 margin on the NYSE, and 18-10 on the Nasdaq. Downside volume was 51% on the NYSE, and 68% on the Nasdaq. New highs-new lows were 18-128 on the NYSE, and 38-149 on the Nasdaq.

The small and medium enterprises (SMEs) in the Indian IT space are confident of achieving 65 per cent growth in the next two years, surpassing 43 per cent growth rate posted for the last two years, according to a study from Dun & Bradstreet (D&B).

The study titled “Emerging IT SMEs of India 2007,” provides insights into 244 IT companies involved in providing software and hardware products and services. All the companies profiled were in the below-Rs 100 million-turnover bracket during the previous fiscal year.

The study notes that close to 53 percent of companies faced moderate problems in acquiring funding and 43 percent felt the proposed withdrawal of tax sops for the IT, ITeS and the BPO industry by 2009, will be significant in terms of deciding future industry growth.

Of the 437 locations, from which these 244 companies operate, Bangalore and Mumbai emerged as the top locations for operations. 18 percent and 17.6 percent of the profiled companies were operating from these two cities, respectively.

The overseas presence of 28 percent of the sample audience encapsulated the changing trend in the SMEs perspective, which are now willing to cross borders to pursue growth. Companies with Rs 10-50 million turnover accounted for almost 50 percent of the profiled companies.

The key findings of the study indicate that thirty-three per cent of companies offered IT services as well as software products. Custom application development and IT consulting are the two software services. 36 percent of the companies are looking at tier - II cities such as Nagpur, Surat, Guwhati and Chandigarh to develop centers; IT SMEs derive bulk of their revenues from the domestic market and only 35 per cent of the companies are involved in exports. Exports are mainly to the APAC region; thus IT SMEs are fairly insulated from the rupee appreciation while wage inflation, high attrition and withdrawal of tax sops remain topmost concerns for IT SMEs.

Kaushal Sampat, COO of D&B India, said, “Despite the strong growth prospects, the IT SME sector is witnessing several challenges such as the acute shortage of skilled manpower, which is mostly faced by IT SMEs located in Tier-II and Tier-III cities.”

Better than expected results from a number of top technology names boosted stocks in the early going Friday, but sellers soon took over to send the market sharply lower.

Despite extreme volatility, Wall Street managed to finish the week with small gains in the Dow and S&P and just a 0.6% loss in the Nasdaq, as the Federal Reserve’s biggest emergency rate cut since 1982 saved stocks from much steeper losses.

Microsoft, Sun Microsystems, Juniper Networks and Broadcom were among the names posting better than expected results late Thursday.

All opened sharply higher Friday morning but ended the day mixed, with Microsoft and Juniper lower and Sun and Broadcom posting small gains.

The selling started as the S&P 500 neared the 1370 level, the bottom of a 15-month trading range the index broke down out of last week, as traders began lowering their expectations for more rate cuts when the Federal Reserve meets next week. Expectations are for a one-quarter to one-half point rate cut, less than this week’s three-quarter point emergency rate cut.

E*Trade was a big gainer, up 8% on a restructuring plan, and Microchip Technology and Compuware were higher on their results. InsWeb jumped 29% after finishing its first year of profitability.

Motorola rallied 6% despite an S&P credit rating cut, as the company rebounded from an 18% drubbing earlier this week.

Synaptics, PMC-Sierra and Integrated Devices fell on their results.

The Nasdaq lost 34 to 2336, the S&P fell 21 to 1330, and the Dow tumbled 171 to 12,207. Volume declined to 4.92 billion shares on the NYSE, and 2.65 billion on the Nasdaq. Decliners led by a 19-14 margin on the NYSE, and 16-14 on the Nasdaq. Downside volume was 73% on the NYSE, and 72% on the Nasdaq. New highs-new lows were 21-84 on the NYSE, and 42-114 on the Nasdaq.

The past year was full of legal and regulatory messes for Microsoft. Plus, Windows Vista missed the 2006 Christmas rush, and the company was slow to roll out its online services.

But things could be looking up in 2008, at least in some areas for the software giant. However, the company is losing one very important asset in 2008: Bill Gates.

Enter the ‘Oz’ Era

Company co-founder Gates, who fueled the Microsoft vision for the past 32 years and was previously CEO, is retiring from active work at the company, expected by summer, 2008. He’s making the move in order to spend more time working on his family charity, the Bill and Melinda Gates Foundation. (What’s the fun of earning all those billions if you can’t have a little fun giving them away in ways meant to benefit the world, such as funding malaria vaccination campaigns in emerging nations?)

As Microsoft’s largest stockholder, Gates will retain his job as chairman of the board of directors. However, he already relinquished his role as chief software architect (CSA) to former competitor, Ray Ozzie, in 2006. Gates will step away from the company full-time, with the exception of “special projects,” as of July 2008.

What won’t change? The company’s top management. An employee since 1980 and CEO since 2000, Steve Ballmer is the firm’s second-largest stockholder. By all accounts, the company is well managed and will continue to be for the current future.

Meanwhile, Ozzie is nearly as legendary as Gates himself, in terms of his powers as a tech visionary. After all, he fathered probably the most successful product that Gates and company ever had to compete with – Lotus Notes.

Ozzie’s biggest challenge is helping to figure out how the company can survive as a software publisher in a world where it looks increasingly that the future will be in services provided “in the cloud” rather than as big programs installed on users’ PCs.

Like Gates, Ozzie enjoys a reputation as both a brilliant engineer and a savvy businessman. He’s also known as a consummate manager. However, since he took the CSA’s reins, Ozzie has been nearly invisible outside the company. Some observers feel he should take on more of the public role that Gates has played – that of technology visionary and the public face of the company.

Since he became CEO, Ballmer has taken on much of the role as Microsoft’s business figurehead. Whether Ozzie will follow in Gates’ shoes as Microsoft’s “Mister Wizard,” however, is unknown.