Investors have spoken: Big technology companies are missing the boat.
Shares of Microsoft Corp., MSFT -11.40% and to a lesser extent Google Inc., GOOG -1.55% were hammered Friday as investors hit the panic button on earnings disappointments from tech giants. Microsoft shares dropped 11.4% to close at $31.40 after the company showed it couldn't outrun a long falloff in personal-computer sales. The swoon cost Microsoft investors a collective $34 billion in a single day.
Shares of Google dipped 1.6%, or $14.08, to $896.60. Hewlett-Packard Co.'s HPQ -4.52% shares fell 4.5% as investors absorbed the potential ripple effects of Microsoft's earnings results.
The downdrafts underscore how investors are punishing companies that aren't keeping up with tectonic shifts in consumer- and business-technology habits. People are relying more on their mobile phones and tablets for computing tasks, and waiting longer to replace aging PCs. Meanwhile, corporations are revolting against older types of technology in favor of Internet-based services.
Microsoft's fiscal fourth-quarter financial results reflected a continued downbeat period for PC sales, which some analysts believe will never grow again. Microsoft also took a $900 million hit from misjudging demand for its first homegrown computing device, the Surface RT tablet. The inventory write-down is a symbol of how Microsoft has missed the mobile revolution so far.
"This quarter's results certainly signal how big a challenge Microsoft faces in trying to gain momentum with its current technology agenda," Wells FargoWFC +0.09% analyst Jason Maynard said in a research note Friday.
Google also took a mobile hit. The company late Thursday said prices for its Web search ads fell for the seventh quarter in a row, in part because rates haven't kept up with the tide of people searching on smartphones and other on-the-go gadgets, where advertising is cheaper. Analysts are waiting to see how ad sales at Facebook Inc., FB -1.14% which reports financial results next week, are keeping up with rising mobile usage.
Amid these shifts, technology companies are having trouble judging their own financial results in the latest quarterly reports. According to FactSet, technology companies in the Standard & Poor's 500 have fallen short of average analyst earnings expectations by an aggregate 6.1%, the worst performance of the 10 industry sectors in the stock-market index.
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Earnings from business-tech companies also aren't immune. Corporate-database titan Oracle Corp. ORCL -0.47% and International Business Machines Corp. IBM -2.25% recently posted worse-than-expected sales as the companies grapple with changing demands from business customers.
Stock prices of S&P 500 tech companies have risen about 9% so far this year, the second-worst performance among industry sectors. The main reason for that laggard performance is declines of big-tech stocks such as Apple Inc. AAPL -1.58% and Oracle.
With implications for tech stalwarts such as Dell Inc. DELL +0.15% and Microsoft, some analysts believe traditional computer sales are in a permanent decline. Research firm Gartner predicts a nearly 11% drop in desktop and laptop-computer shipments this year, and a 5% slide in 2014.
Intel Corp. INTC -0.88% this week posted a 5% slide in revenue, making the computer-chip maker another PC-slump casualty. Executives at Intel, which lowered its PC-sales forecast for the year, acknowledged the company has been late to the trend of tablets and other devices that typically haven't used Intel chips.
REUTERS
Shares of Microsoft were hammered Friday.
On Friday, shares of fellow chip maker Advanced Micro Devices Inc. AMD -13.15% retreated 13% as AMD said sales fell. Even after the stock hit, AMD shares have climbed 68% since the end of 2012.
Microsoft's stock price now has given back most of a run-up since the spring. Despite a constant beat of bad news about the PC business, Microsoft investors had been focused on the company's potential to convert its software products to Web-based, subscription businesses. Earlier this week, Microsoft's stock price had hit its highest point since late 2007.
Now that the PC hits have caught up to Microsoft, some Microsoft investors have turned their hopes to the possibility of stock-boosting actions from a newcomer stockholder, ValueAct Capital Management LP. Earlier this year, the hedge fund bought more than $1 billion worth of Microsoft stock, and analysts have said the company is seeking a board seat or other changes that could lift Microsoft's stock price.
Microsoft's lead independent director has spoken at least once with a ValueAct representative to hear the firm's views on the company. Jeff Ubben, ValueAct's chief executive, didn't immediately respond to a request for comment Friday.
A spokesman for Microsoft on Friday reiterated an April statement that said the company is "committed to enhancing value for all shareholders and will continue to take actions that we believe will enable us to achieve this objective."
—Alexandra Scaggs contributed to this article.
Write to Shira Ovide at shira.ovide@wsj.com
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