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Google's profit shortfall may cast more doubt on tech sector

April 14, 2011 |  3:35 pm

Google Inc.’s miss on first-quarter earnings was exactly what the struggling tech-stock sector didn’t need.

Shares of the Internet search titan plunged to a six-month low of $547 in after-hours trading Thursday, down 5.4% from $578.51 at the closing bell, following the company’s profit report.

Google’s first-quarter sales of $6.5 billion topped expectations, but adjusted earnings of $8.08 a share slightly trailed analysts’ mean estimate of $8.12 as tracked by Bloomberg News.

Wall Street zeroed in on the company’s rising spending for new hires and marketing -- good for the economy, but a squeeze on the bottom line.

Google Google says it’s making the investments it needs for its future, but as Jessica Guynn notes on The Times’ Tech blog, investors fear that Chief Executive Larry Page “will dramatically increase spending to invest in projects that could take a long time to make money.”

Page, Google’s co-founder, returned as CEO two weeks ago, succeeding Eric Schmidt, who had guided the company since it went public in 2004.

Under Schmidt, Google beat analysts’ earnings estimates in all but four of the last 26 quarters (not counting the first quarter), according to Bespoke Investment Group. The last miss was in the second quarter of 2010.

Google’s latest profit shortfall, small though it was, may further darken investor sentiment about the tech sector. Shares of some of the industry’s leading companies have been under heavy pressure over the last two months, in part because of concerns about slowing personal computer sales.

Chip giant Intel Corp.’s stock ended Thursday at $19.58, down 6.9% year-to-date. Microsoft Corp. shares are down 8.9% this year, and computer networker Cisco Systems Inc. has slumped 15.1%.

By contrast, the Standard & Poor’s 500 index is up 4.5% this year and the Nasdaq composite index is up 4%.

Tech's stock woes aren't universal. Apart from Microsoft, many software shares remain hot issues. Oracle Corp. shares are up 8% this year. BMC Software is up 7.5%.

And of course, part of what’s undermining the old-guard tech companies is that consumers are shifting to new devices, including tablet computers and smartphones.

But even shares of Apple Inc., the leader of the new revolution, are showing fatigue. Apple’s stock, at $332.42 on Thursday, is down 8.4% from its all-time closing high of $363.13 on Feb. 16.

Another market darling of 2010, Internet-traffic manager F5 Networks Inc., has plunged 26% this year after soaring 146% last year. The company warned in January of weaker-than-expected near-term sales.

Japan’s devastating earthquake also has cast a cloud over the tech sector by causing shortages of some key components.

-- Tom Petruno

Photo credit: Tony Avelar / Bloomberg News