Stocks trade lower after Microsoft pulls Yahoo bid

By TIM PARADIS, AP Business Writer

NEW YORK - Wall Street pulled back Monday as investors digested Microsoft Corp.'s decision to withdraw its bid for Yahoo Inc. and a better-than-expected reading on the service sector. Microsoft had offered $43.7 billion to buy Yahoo Inc., but scrapped the bid late Saturday after the software maker and the Internet provider could not agree on a sale price. The failed deal came as a disappointment to Wall Street, as merger-and-acquisition activity tends to boost shareholder value, and also signals to the broader market that corporate America is optimistic about the future. But investors did appear to take some encouragement from a key reading on the U.S. service sector. The Institute for Supply Management said its April index of nonmanufacturing activity rose to 52 from 49.6 in March. A reading above 50 signals economic expansion; analysts had expected the figure would come in at 49.3, according to economists surveyed by Thomson Financial/IFR.

In midmorning trading, the Dow Jones industrial average fell 64.97, or 0.50 percent, to 12,993.23. Broader stock indicators were mixed. The Standard & Poor's 500 index fell 3.73, or 0.26 percent, to 1,410.17, and the Nasdaq composite index fell 4.52, or 0.18 percent, to 2,472.47. Helping to offset some of investors' disappointment over the abandoned Yahoo deal was a report from The Wall Street Journal, which said Deutsche Telekom AG is considering a bid to buy Sprint Nextel Corp., according to people familiar with the discussions. Bond prices slipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.87 percent from 3.86 percent late Friday.

Overall, first-quarter earnings reports and economic data have been coming in weak, but not as poor as many on Wall Street had braced for. Optimism for an economic rebound later in the year has lifted the Dow back above the 13,000 mark. Investors have lingering concerns, however — not only is the housing market still extremely weak, but commodities prices remain near record levels, threatening consumers' discretionary spending and their ability to pay off debt.

Crude oil futures for June delivery rose $2.84 to $119.16 a barrel on the New York Mercantile Exchange, boosted by news of an attack on a Nigerian oil facility. Crude oil had spiked more than $3 a barrel on Friday, and some analysts are concerned the commodity will surge back above its record near the $120-a-barrel level. Gold prices also climbed Monday, while the dollar traded mixed against other major currencies. Overseas, Japan's and Great Britain's markets were closed. In afternoon trading, Germany's DAX index rose 0.13 percent, and France's CAC-40 rose 0.08 percent.

Microsoft Earnings Decline 11%; Forecast Is Tempered

By Amy Thomson

(Bloomberg) -- Microsoft Corp. said profit declined 11 percent and gave a measured forecast for this quarter as sales of Windows software fell short, sparking concern about a slowdown in technology purchases and sending the shares down 4.4 percent. Third-quarter net income fell to $4.39 billion, or 47 cents a share, from $4.93 billion, or 50 cents, a year ago. Revenue was little changed at $14.5 billion, matching analysts' estimates and disappointing investors looking for more after industry reports showed better-than-expected demand for personal computers. The world's biggest software maker said sales of Windows for PCs sank 24 percent and revenue from its online advertising unit came in at the low end of its projections. Microsoft's report contrasted with positive comments from chipmaker Intel Corp. and computer company International Business Machines Corp. ``People were expecting more of a blowout,'' said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon. ``It's a decent quarter. It's not a great quarter by any means, and people were expecting a great quarter.'' Earnings in the quarter, which included costs of 15 cents a share for a European Commission fine, beat the 44.5-cent average of analysts' estimates. Profit and sales a year ago were helped by $1.67 billion in Windows and Office software orders held over from the previous quarter for accounting reasons. For this quarter, Microsoft said profit will be 45 cents to 48 cents on sales of $15.5 billion to $15.8 billion. That compares with analyst estimates of 48 cents and $15.5 billion. Microsoft declined $1.41 to $30.39 in extended trading after closing at $31.80 at 4 p.m. New York time on the Nasdaq Stock Market. The stock has fallen 11 percent this year.

Windows Concerns

The results stoked concern that corporations are tightening their belts as the U.S. economy cools, even after a report from researcher IDC showed PC sales exceeded forecasts in the quarter. PC shipments rose 15 percent, Framingham, Massachusetts-based IDC said this month. Microsoft had forecast as much as 11 percent. Windows sales fell to $4.03 billion in the quarter. UBS AG's Heather Bellini, the top-ranked software analyst by Institutional Investor, predicted $4.3 billion. Sales of Office word-processing and spreadsheet applications trailed forecasts slightly as well. Chief Executive Officer Steve Ballmer has sought to bolster sales by selling more higher-priced versions of Windows, the operating system that runs more than 90 percent of the world's PCs. Those gains were limited last quarter. More Windows sales came from emerging markets, where prices are typically cheaper, Chief Financial Officer Chris Liddell said in an interview. ``That means that we are seeing revenue growth relative to unit growth isn't as strong,'' he said. The company expects PC growth of as much as 13 percent for fiscal 2008.

Online Business

Microsoft said total sales in the year that starts in July will rise to between $66.9 billion and $68 billion, beating the $66.6 billion average of estimates in a Bloomberg survey. Profit will increase to between $2.13 and $2.19 a share, topping an estimate of $2.11. In the online business, where Ballmer is seeking to build sales by bidding for No. 2 search engine Yahoo! Inc., the loss widened to $228 million. Sales rose 40 percent to $843 million. Microsoft had forecast 40 percent to 45 percent growth. Google Inc.'s revenue climbed 46 percent in the period, to $3.7 billion. Yahoo CEO Jerry Yang dodged Microsoft's advances, rejecting the $31-a-share bid and approaching rivals such as Time Warner Inc.'s AOL. Ballmer may begin a proxy contest to oust Sunnyvale, California-based Yahoo's board as soon as this weekend. The acquisition, which would be the largest in Microsoft's history, may help the software maker take a bigger chunk of the $41 billion market for Internet ads away from Google.

Xbox Growth

One bright spot in the quarter came from the Xbox video-game unit, where sales growth was almost double some forecasts. The business posted its third straight quarterly profit and revenue rose 68 percent to $1.58 billion. Microsoft predicted growth of 25 percent to 35 percent. Ballmer has lined up exclusive titles such as ``Halo 3'' and ``Mass Effect'' to win users from Nintendo Co.'s Wii system and achieve the first annual profit in the Xbox unit. It was ``an outstanding Xbox quarter,'' said Canaccord Adams Inc. analyst Peter Misek in Toronto. ``It's just amazing that a company this size is being driven by video games.''

Amazon earnings jump as sales beat forecasts

Online retailer projects better-than-expected revenue for second quarter
By Dan Gallagher, MarketWatch

SAN FRANCISCO (MarketWatch) -- Amazon.com saw earnings jump 30% in the first quarter on strong sales growth, and the company issued a stronger-than-expected sales forecast for the current period. For the quarter ended March 31, the online retailer (AMZN)reported earnings of $143 million, or 34 cents a share, compared with earnings of $111 million, or 26 cents a share, for the same period last year. Revenue grew 37% to $4.13 billion for the quarter compared with $3.02 billion last year. Analysts were expecting earnings of 33 cents a share on revenue of $4.09 billion, according to consensus estimates from FactSet Research. Amazon said operating income grew 36% to hit $198 million. The company's closely watched operating margin figure was 4.8% for the quarter -- essentially flat with last year's first quarter as well as the margin figure for the fourth quarter. For the second quarter, Amazon projected revenues between $3.875 billion and $4.075 billion. The midpoint of that outlook -- $3.97 billion -- was ahead of the $3.83 billion expected by analysts for the period. Amazon projected operating income for the second quarter to come in between $120 million and $160 million. Shares of Amazon slipped 2% in after-hours trading after closing the regular session up 1.8% at $81

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AT&T to layoff 4,650 employees

(Wichita Business Journal - St. Louis Business Journal) AT&T Inc. is laying off 4,650 employees, or 1.5 percent of its workforce, in order to operate more efficiently after bringing together several companies in recent years, according to a regulatory filing Friday with the Securities and Exchange Commission. The job cuts are primarily among management employees. AT&T is streamlining its operations particularly in non-customer-facing areas so that the company is more focused on customers, according to the filing. The company's overall headcount is expected to remain stable in 2008, though, as the company hires additional employees to support growth areas, according to the filing. Those growth areas include AT&T's wireless, home TV and broadband businesses.

"It's important to put the announcement in context. AT&T is a huge organization, with more than 300,000 employees," Walt Sharp, AT&T spokesman, said in a statement. "We are constantly adjusting our headcount, primarily to get more employees into our growth areas. The bottom line is that we remain one of America's largest employers and we are putting jobs where our customers are." AT&T will take a pre-tax charge of $374 million in the first quarter of 2008 associated with these force reductions. San Antonio-based AT&T Inc. provides local and long-distance telephone and Internet service in Missouri and Illinois.

Oil eases from record over $115

(Reuters) - Oil prices slipped from record highs on Thursday after a drop in U.S. inventories and the weaker dollar had pushed prices above $115 a barrel. U.S. crude settled down 7 cents at $114.86 a barrel after rallying to an all-time peak of $115.54. London Brent settled 23 cents lower at $112.43 a barrel, off the record $113.38 set earlier. U.S. crude inventories fell unexpectedly last week, while a drop in gasoline stocks exceeded analyst expectations, a government report said on Wednesday, raising supply concerns as the world's top consumer gears up for the summer driving season. Gasoline stocks in the United States fell by 5.5 million barrels in the latest week, more than the 1.8-million-barrel decline analysts had expected. "Summer driving season is approaching. And, even in a recessionary economy, seasonal gasoline demand will pick up, which adds to stress on the global oil supply chain," Jan Stuart at UBS said in a research note. "But, before we get there, the stress already put onto the supply chain globally by middle distillate demand and supply dynamics is not still abating," he added. In the latest indication of strong demand for middle distillates, China's top refiners were set to extend high imports into a sixth straight month. Oil prices have more than quadrupled since 2002 as supply struggles to keep up with booming demand, especially in China and other emerging economies. The slide in the U.S. dollar has supported prices for oil and other dollar-denominated commodities, luring investors seeking to hedge against inflation and compensate for the shrinking value of dollar assets in their portfolios. The dollar pared gains after the Philadelphia Federal Reserve's business index fell sharply in April, adding to concern about the health of the U.S. economy. Earlier, the dollar had gained against the euro after Jean-Claude Juncker, chairman of euro zone finance ministers, spoke out against the single currency's rise.

Saudi to leave some oil finds for future

Reuters)Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations, the official Saudi Press Agency (SPA) reported. "I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said in remarks made late on Saturday. US President George W Bush in January urged the Saudi King to help tame soaring prices by encouraging Opec to pump more oil. On separate trips to Saudi Arabia this year, the US Energy Secretary also asked for more oil, while the Vice-President discussed high prices with the king. The kingdom has spent billions on building over 2 million bpd of spare crude capacity and is the only country in the world able to bring online large volumes of crude supply quickly to deal with unexpected supply shortages. Opec held production steady at meetings in February and March despite calls for more oil from the US and other consumers. Opec officials blame the high price on factors beyond the group's control such as the weak dollar, investment flows into commodities and speculation. Saudi Oil Minister Ali Al Naimi said last week that global oil markets were well supplied and there was no need to put more oil on the market, despite prices hitting a record of over $112 a barrel last week. Saudi Arabia has trimmed its output to around 9 million bpd to reflect lower customer demand, a Saudi oil source said on Friday. The kingdom had in previous months pumped around 9.2 million bpd. Crude demand traditionally dips at this time of year after the end of winter as refiners carry out maintenance and prepare to meet summer demand. Saudi production capacity stands at around 11.3 million bpd, and is scheduled to rise to 12. 5 million bpd next year.