Google and Microsoft see a jump in profits

Windows 8 salesperson Microsoft's profits have risen despite a lukewarm reception for its Windows 8 system

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Technology giants Google and Microsoft have both reported rising profits.

Google's net profit climbed to $3.35bn (£2.19bn) in the first three months of the year, up 16% from a year earlier, boosted by online advertising revenue.

Microsoft said it made $6bn in profit during the same period, a jump of more than 17% from a year ago.

Its earnings, which beat market forecasts, came despite a lukewarm reception for Windows 8 and a decline in global PC sales during the period.

Meanwhile IBM reported a fall in first quarter profits and revenues after the technology services company failed to complete deals in time and was hit by the depreciation of the Japanese yen.

'Fantastic' margins

Analysts said that Microsoft's profits were boosted in part by changing the way its sold its products to corporate clients, as well as cost-cutting measures.

"Microsoft has successfully transitioned into an enterprise software company and these results show that," said Kim Caughey Forrest, a senior analyst at Fort Pitt Capital.

"The strength of server and tools, and the actual way they sell licences to business, is making up for the missing PC sales.

"The margins are fantastic and the online services division seems to lose less money each quarter," she added.

Meanwhile Google's profits were driven up by growing income from online advertising, which helped boost overall revenues to nearly $14bn for the quarter. That is up from $10.7bn during the same period last year.

The results also suggested that Google may be beginning to build confidence with advertisers. The amount paid per advert is still declining, but at a slower rate than last year.

Management changes

Start Quote

The CFO departure is a little bit troubling. We've had a lot of executives leaving Microsoft recently”

End Quote Brendan Barnicle Pacific Crest Securities

Despite the stronger-than-expected numbers, Microsoft announced that its chief financial officer (CFO), Peter Klien, would be leaving the firm at the end of June.

Mr Klein, who has been with the tech giant for 11 years, is the latest in a series of executives to leave the company.

His departure comes just months after the Steven Sinofsky, the head of Windows division, quit the firm.

The departures of the two senior figures have come as there have been questions over the leadership of chief executive Steve Ballmer.

These doubts have been driven in part by slowing growth, and amid concerns that Microsoft had not been able to make a significant impact in the new and fast-growing sectors such as the smartphone and tablet PC markets.

The leading smartphone and tablet PC makers, such as Samsung and Apple, rely more on operating systems such as Android and iOS, rather than Microsoft's Windows, which has enjoyed a dominance in the traditional PC market.

The fear for Microsoft is that as more people use smartphones and tablet PCs to access the internet, it may see its market share decline.

These concerns have grown after Windows 8, which is designed to make PCs work more like tablet computers, was greeted with mixed reviews at its launch last October.

More positively, analysts said that Mr Klien's departure from the firm suggested that an imminent departure of chief executive Steve Ballmer was unlikely.

"The CFO departure is a little bit troubling. We've had a lot of executives leaving Microsoft recently," said Brendan Barnicle, an analyst with Pacific Crest Securities.

"This also makes a departure by Steve Ballmer less likely. It would be very unusual to have a CEO leave soon after a CFO departure."

Yen impact

Also on Thursday, IBM reported first quarter earnings of $3bn, down 1% from a year earlier, with revenues falling 5% to $23.41bn - lower than analysts' expectations.

IBM said its results had been hit by delays in completing deals, with about $400m worth of contracts that were expected to be counted in the first quarter of the year now being moved into the second.

In addition, the company said that the recent weakening of the yen had affected its earnings. The depreciation of the yen means that it earns fewer dollars from sales in Japan.

"Despite a solid start and good client demand, we did not close a number of software and mainframe transactions that have moved into the second quarter,'' said IBM's chief executive, Ginni Rometty.

"The services business performed as expected with strong profit growth and significant new business in the quarter.''

IBM's chief financial officer Mark Loughridge said it was "hard to measure" whether the recent series of US budget cuts - the sequester - had affected the firm.

"I can tell you that our US federal business was down 13%, which was certainly a drag on the US performance," he said.

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