Google's earnings miss raises worries

SAN FRANCISCO - Google Inc.'s top executives say all is well at the Internet search leader despite a rare earnings disappointment, but investors are worried something is amiss.

Concerns about how the feeble U.S. economy might affect Google contributed to a nearly 20 percent decline in the company's stock during January.

Now, it looks like February will begin on a sour note. Google shares dropped by more than 6 percent from their Thursday closing price of $564.30 after the company released fourth-quarter results that missed analysts' expectations.

Precisely what caused the letdown is likely to be a matter of intense debate in the next few days.

"There is a lot to scratch my head over about in this (report),"

Jackson Securities analyst Brian Bolan said late Thursday.

"I might be up all night trying to figure it out."

Chief Executive Eric Schmidt rebuffed the notion that the economy undercut Google's growth.

"I am happy to say we have not seen a negative impact from the rumors of a future recession,"

Schmidt told analysts in a conference call.

Company co-founder Sergey Brin said in an interview that the company hasn't seen evidence of the recent economic turmoil affecting its business.

"I'm very happy with things,"

Brin said.

"I think things are going really well."

Google earned $1.21 billion, or $3.79 per share, during the final three months of 2007. That's a 17 percent improvement over net income of $1.03 billion, or $3.29 per share, in the same period a year earlier.

It's the first time Google's quarterly profit has climbed by less than 25 percent since the Mountain View-based company went public nearly 3 1/2 years ago.

If not for stock awards given to its employees, Google said it would have made $4.43 per share — a penny below the average estimate among analysts polled by Thomson Financial.

The earnings would have been even lower if Google hadn't benefited from an abnormally low tax rate of 25 percent in the quarter. American Technology Research analyst Rob Sanderson estimated Google would have earned 11 cents per share less if the company had been taxed at its more typical rate of 27 percent.

Fourth-quarter revenue totaled $4.83 billion, a 51 percent improvement over $3.21 billion in the previous year.

In a more important measure to investors, Google retained $3.39 billion in revenue after paying fees to the thousands of Web sites in the online advertising network that fuels its profits.

The net revenue missed analyst estimates by about $60 million.

Google executives said a revision in the company's formula for showing advertising links crimped the fourth-quarter results by reducing the number of revenue-generating clicks. Without providing details, the executives said Google made the change to decrease the frequency of "accidental" clicks on ads.

Total paid clicks in the fourth quarter rose 30 percent from the same period in 2006. In the first three quarters of 2007, Google's paid clicks were rising at a clip of 45 to 52 percent.

Brin and other executives also said Google didn't reap as much revenue as management envisioned from its advertising partnerships with rapidly growing online social networks like News Corp.'s MySpace.

Management didn't quantify the size of the shortfall, but Brin said engineers are addressing the problem.

Google has guaranteed News Corp. payments totaling $900 million during a three-year contract scheduled to end in 2010, so it can lose money if ads on MySpace aren't paying off.

Sanderson said Google's explanations made sense to him.

"I don't think much has changed at Google from yesterday to today. They are still in a sweet spot."

But Google's reassurances didn't seem to placate jittery investors worried that online advertising revenue may taper off as the United States — the world's biggest economy — teeters on the brink of recession.

Google shares rose $16.03 to finish regular trading at $564.30, then plunged $36.90 in extended trading after the fourth-quarter results came out.

Because Google generally only gets paid when Web surfers click on an advertising link, its growth could taper off if consumers become less inclined to click on ads as they curtail their spending.

But Google also could benefit if consumers become more focused on saving money during hard times, according to Jonathan Rosenberg, the company's senior vice president of product management and marketing.

In Thursday's conference call, Rosenberg painted a scenario in which more consumers will turn to the Internet in search of the best deals — a quest that will lead them to Google and perhaps induce more revenue-producing clicks on ads.

For all of 2007, Google earned $4.2 billion, or $13.29 per share, a 37 percent improvement over $3.08 billion, or $9.94 per share, in 2006. Revenue in 2007 totaled $16.59 billion, a 56 percent increase from $10.6 billion in 2006.

Bill and Steve's Dueling Keynotes End With a Whimper

With Bill Gates' upcoming retirement, January marked the last time he and Steve Jobs would deliver back-to-back keynote speeches at CES and Macworld, respectively. We're witnessing the end to one of the most interesting personal rivalries the technology industry has ever known. Both men's presentations lacked any real punch, though, and they've left us hanging.

Because the Consumer Electronics Show and Macworld run back to back, it's easy to make comparisons between the two men who headline the big tech trade shows. As a journalist, I had barely unpacked my bags, mentally speaking, before I had to move on from listening to Bill Gates to hearing Steve Jobs.

This year is the last when I can draw a timely comparison between, as the Apple ads depict, the straitlaced PC Guy and the cool Mac Guy. Gates said this year's speech was his final CES keynote before he becomes a full-time philanthropist. Jobs won't have Gates to belittle anymore. However, even with Gates gone, Apple will no doubt still find ways to belittle Microsoft . I get the sense that the needling comes from the very top. This kind of tit-for-tat sparring has gone on between the two men since the 1970s.

How Times Change

It is funny how things change. When Gates gave his first CES keynote in 1994, Microsoft was on the march and Jobs was still trying to get his little animated film company, Pixar , off the ground. Now the positions seem reversed. Jobs has more cachet than Gates. He has a Midas touch, with everything from his new operating system to the iPhone getting rave reviews. The only exception was the original Apple TV.

Gates went out with a whimper. Microsoft didn't have many new products to tout at CES. Some cool things, like the Microsoft Surface Computing table, weren't ready to ship. Gates repeated parts of his past speeches on the "digital decade," but he didn't close with any great predictions. Nor did he slam rivals or dazzle us with his intelligence.

His most scintillating quote:

"This is just the beginning. There is nothing holding us back from going much faster and much further in the second digital decade."

I got a sense that Gates didn't have his heart in everything he was talking about. Sure, he had shipped 110 million copies of Windows Vista, the new Microsoft operating system. That's a good way to go out. However, he closed with a demo of "Guitar Hero III," a video game you can get on non-Microsoft platforms. It was as if he had nothing profound to say.

The Man With the $7 Haircut

The hilarious thing that Gates did was make fun of himself in a video that depicted his "last day" of work at Microsoft, expected to happen sometime in the summer. It was as if he was minimizing his importance at Microsoft, signaling that the company could go on without him. He mocked his own celebrity status and used the cachet of his video guests -- George Clooney, Hillary Clinton, Barack Obama, Al Gore and others -- to entertain the crowd. He apparently wants to be remembered for his sense of humor, not for wise words or stunning demos. NBC anchor Brian Williams closed the video with this:

"Let's face it, (Gates) doesn't believe in paying more than $7 for a haircut."

That's what you say about the class clown, not the world's richest man.

Proud Papa

Jobs, meanwhile, was the celebrity at Macworld. The crowd hooted and cheered every little announcement. With his showman's flair, Jobs showed off a few innovations that reflected the different styles of the companies.

Microsoft did so many demos that it diluted the impact of each one. Jobs limited himself to just four products that he treated like his babies. He looked like a proud papa when he held up the world's thinnest notebook computer, walking back and forth on stage with it so everyone could photograph it. And he touted such accomplishments as selling 5 million copies of Apple's new operating system in 90 days and selling 20,000 iPhones a day in 200 days.

Clearly, the personal style of Jobs is hands on, as if he were a Swiss-watch maker. With the dueling keynotes, I have come to expect more from Jobs than I do from Gates. Maybe that's why I was more disappointed with Jobs.

No "One More Thing"

These were evolutionary, not revolutionary, announcements by Apple standards, said Tim Bajarin, analyst at Creative Strategies.

Last year, Macworld outshone CES because of Jobs' big iPhone announcement. This time, Jobs rescued Apple TV from an early death, but he didn't close with his signature "one more thing," surprising the audience with something totally unexpected. Instead, he introduced singer Randy Newman and walked off the stage. It was as if Jobs pulled a punch and decided to keep more announcements in his pocket for another day.

Last year, Jobs and Gates appeared on stage together at the All Things D conference to reminisce about old times. Gates said he would love to have Jobs' taste in picking designs. Jobs commented on how the Mac Guy and the PC Guy need each other.

That's all the closure we'll get to the "Steve & Bill Show." We're witnessing the end to one of the most interesting personal rivalries the technology industry has ever known. In the past couple of weeks, it happened without much ado. It leaves me hanging. Like the ending of "The Sopranos."

Adam Gilchrist announces his retirement

Adam Gilchrist, who revolutionised the role of the wicketkeeper-batsman, has retired from Tests barely 24 hours after taking the world record for dismissals. The shock news means Gilchrist will depart on a global high at the end of the fourth match against India on Monday and his last ODI appearances will come in the CB Series, which finishes in March.

Over the past couple of years Gilchrist, 36, has been worn down by the grind of international touring and has been desperate to spend more time with his wife Mel and their three children. Despite his family circumstances, Gilchrist's announcement at the end of the third day came as a surprise after he had spent much of the previous evening denying he was close to walking away.

"I'll let people know when I'm going to retire,"

he said on Friday,

"whether it's tomorrow or in 12 months. At the moment I'm going to keep focussing on giving everything I've got to this team."

He told his team-mates in the morning he was leaving and it was an emotional time.

"I've come to this decision after much thought and discussion with those most important to me,"

Gilchrist said before boarding the team bus.

"My family and I have been fortunate to have had an amazing journey full of rich experiences throughout my career."

Gilchrist played 96 Tests, the same number as Rod Marsh, and has collected 414 dismissals, currently one more than South Africa's Mark Boucher. However, his glovework, which has diminished over the past month, will not be why he is remembered as one of Australia's most significant players.

Matthew Hayden, who has been a team-mate of Gilchrist's for the past eight years, called it "massive news" and said he would be "deeply, deeply missed".

"He is one of the greatest to have ever played the game,"

Hayden said.

"He was incredibly positive and his flamboyant nature equals the greats of Viv Richards and other calypso characters over the years."

"He entertained everyone globally and has done it in a statesman-like way. He changed cricketers throughout the world and is a tremendous individual."

Gilchrist brought a limited-overs approach to Tests, becoming the first man to launch 100 sixes in the format, registering the most centuries by a wicketkeeper-batsman, and scoring at a phenomenal strike-rate in the low 80s. Apart from posting almost 6000 runs, he was also responsible for the more aggressive approach to a game where three runs an over was previously considered reckless.

Growing up in New South Wales, he moved to Western Australia to collect a first-class opportunity and made his Test debut to a chorus of boos after replacing Ian Healy in Brisbane. He scored 81 against Pakistan and brought up his first century in the following match in a miracle chase in Hobart. From 1999 the Australia team was never the same, winning 16 Tests in a row under Steve Waugh, a streak that was matched by Ricky Ponting's outfit over the past three years.

One of only three players to have won a trio of World Cup titles, Gilchrist was picked to open on a Waugh hunch over a bowl of ice-cream and quickly became one of the most threatening limited-overs players of all time. Others have tried to adopt his style but none has managed it for a decade, which is a tribute to the traits developed by a country boy from northern New South Wales.

"I am now ready and excited to move into the next phase of my life, which will include much more time with Mel, Harrison, Annie and Archie,"

Gilchrist said. He thanked his state and country associations and his team-mates for the

"most enjoyable, fun career anyone could hope for".

Brad Haddin, the New South Wales wicketkeeper, has spent the past couple of years with the limited-overs team and should get his first taste of Test action if the March tour to Pakistan goes ahead.

Two more wickets need to fall before Gilchrist will appear at Adelaide Oval and he will be celebrated like Shane Warne, Glenn McGrath and Justin Langer were last year. Adelaide has not been the normal place for farewells over the past decade, but Gilchrist has not been a traditional player.