SEATTLE (Reuters) – Microsoft Corp shares fell their most in almost two years on Friday, a day after the software company reported a dip in its Windows operating system sales.
The world's second-largest tech company behind Apple Inc met Wall Street's profit estimate and beat on overall sales in its earnings report on Thursday.
But investors were concerned with lower personal computer sales nagging at Windows, Xbox sales bringing down profit margins and losses in its online business.
Microsoft shares were down 4 percent at $25.63 in afternoon Nasdaq trading, the biggest one-day percentage fall since July 2009.
The shares are back to the level they were at on Monday, before a run-up leading into quarterly earnings. The stock had risen sharply after chip maker Intel Corp forecast revenue above Wall Street estimates, feeding optimism that a dip in PC sales last quarter did not indicate a long-term trend.
"Everyone, including myself, pounded the table on the Intel trade," said BGC Partners analyst Colin Gillis. "And it just didn't happen."
PC sales fell 1 percent last quarter, according to research firm Gartner. Microsoft's results reflected that, although it said business demand was outpacing weak consumer demand for PCs.
The stock is down 18 percent in the last 12 months, compared to a 16 percent gain in the Nasdaq.
"There were two catalysts for the sharp decline in Microsoft," said Joe Cusick, senior market analyst at Chicago-based online brokerage firm optionsXpress. "One, the stock broke through the 200-day moving average of $26.08, and UBS lowered their price target for the stock."
UBS analyst Brent Thill on Friday cut his price target on Microsoft to $32 from $35, citing the long-term threat posed by tablets to the traditional PC business.
"Even though they had good earnings, the PC market is under scrutiny and there continues to be uncertainty on whether or not Microsoft can compete with the growing tablet and handheld devices from the likes of Samsung and Motorola," said Cusick.
Options traders, many of whom placed bets on Microsoft shares jumping earlier in the week -- perhaps as a hedge to holding the stock in case of a decline -- moved into a more critical mode.
"There is nothing too rosy in Microsoft options trading on Friday compared to some of the bullish trades we saw ahead of earnings," said Caitlin Duffy, equity options analyst at Interactive Brokers Group in Greenwich, Connecticut.
"For the most part, we are seeing call selling in near-term options," she said, indicating traders are looking to get rid of their rights to buy the stock.
Overall, Microsoft analysts kept their faith that Microsoft will survive a rough patch in PC sales. Twenty-five of 35 analysts polled by StarMine recommend buying the stock. Only one says sell.
As a result of Microsoft's decline, it is close to being eclipsed by old foe IBM in terms of market value. Apple, which overtook Microsoft last year, is the most valuable U.S. tech company at $321 billion, Microsoft is second at $225 billion and IBM is third at $207 billion.
(Reporting by Bill Rigby and Doris Frankel. Editing by Robert MacMillan)
NEW YORK (Reuters) – The jury in Raj Rajaratnam's insider trading trial completed a fifth day of deliberations without reaching a verdict on Friday, mirroring the time jurors have spent in other high-profile, complex white-collar cases.
"This is probably a sign of a very good and thoughtful jury," Robert Weisberg, a law professor at Stanford University said about the deliberations in the Galleon Group hedge fund founder's trial. "Very good juries, in complicated cases, take time."
Prosecutors have accused the Sri Lankan-born Rajaratnam, 53, of reaping as much as $63.8 million illegally by trading on inside tips about such companies as chipmaker Advanced Micro Devices Inc and Wall Street's Goldman Sachs Group Inc. If convicted, he could face up to 25 years in prison.
A conviction would likely result in more use of secretly recorded phone calls in federal prosecutions. An acquittal would be a huge blow to the U.S. Department of Justice, which has made investigating suspected insider trading a priority.
Several other prominent white-collar crime trials have had lengthier deliberations.
Jurors needed 11 days in 2005 to convict two former Tyco International Ltd officers, Chief Executive Dennis Kozlowski and Chief Financial Officer Mark Swartz, of looting the company. An earlier prosecution ended in a mistrial.
Onetime WorldCom Inc chief Bernard Ebbers waited eight days in the winter of 2005 before being convicted on charges of securities fraud and inflating the phone company's statements.
Former Enron Corp chiefs Kenneth Lay and Jeffrey Skilling waited six days before being convicted in 2006 for their roles in one of corporate America's most spectacular implosions.
And jurors needed 21 days over six weeks in 2005 to acquit former HealthSouth Corp chief Richard Scrushy of accounting fraud. He was later convicted in a separate trial.
Some deliberations take less time. A jury took three days in 2004 to find that Martha Stewart, founder of Martha Stewart Living Omnimedia, had obstructed justice.
NOT A SLAM DUNK?
In the Rajaratnam trial in Manhattan federal court, the jury asked for exhibits or audio replays of phone taps on Tuesday and Wednesday. It has not since made any requests related to evidence. Deliberations are due to resume on Monday.
Jurors have been locked in a room adjoining the courtroom of U.S. District Judge Richard Holwell. They have emerged twice to listen to replays of 15 phone taps. Other than that, they have been seen in the courtroom only to tell the judge at the end of each session that they were still deliberating.
"The longer it goes, the less of a slam dunk the prosecution has," said Cornelius Hurley, a Boston University law professor. "It should make it easier, the wiretaps. You have the exact, contemporaneous words of the defendant."
The verdict essentially hinges on whether the government has convinced jurors beyond a reasonable doubt that Rajaratnam traded on material nonpublic information from people who had a duty not to disclose it, and knew it was wrong.
"They may be weighing the idea presented by the defense that Rajaratnam's investing strategy relied on myriad pieces of information from a range of sources and did not use material nonpublic information," said Bennett Gershman, a law professor at Pace University in New York.
Jurors began deliberations on Monday, after seven weeks of often complex evidence. They are trying to reach unanimity on nine counts of securities fraud and five counts of conspiracy.
Gershman said jury deliberations in Rajaratnam's case could go on for a while.
"Unless you hear those magic words "deadlock," "impasse," "we are unable to reach a verdict", the judge will let them go on for many, many more days," Gershman said.
The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.
(Reporting by Carlyn Kolker, Grant McCool and Jonathan Stempel)
WASHINGTON (Reuters) – A federal appeals court on Friday rejected a challenge to the government's decision to allow California to cut greenhouse gas emissions from new cars sold in the state.
The U.S. Chamber of Commerce and National Automobile Dealers Association asked an appeals court to review a waiver the Environmental Protection Agency gave California from a federal clean air law to allow the state to implement its own vehicle emissions standards.
The EPA waiver went beyond California as 14 others states eventually adopted the same clean car program.
Automakers agreed not to fight the EPA waiver, which resulted in higher vehicle fuel economy requirements.
However, the two trade groups, acting on behalf of their automobile dealer members, argued it was unreasonable for EPA to give California a waiver for dealing with the world-wide environmental problem of global warming.
The appeal courts said it lacked jurisdiction to decide the lawsuit brought by the two trade groups against the EPA waiver and it dismissed the petition to review the agency's decision.
The court said the Chamber lacked the authority to challenge the waiver because it "has not identified a single member who was or would be injured by EPA's waiver decision."
The court also said the automobile dealers group could not show where any of its members had suffered an "actual injury" from the EPA waiver.
"We will not vacate the waiver decision granting California this enforcement authority simply because the particular petitioners before us lack the requisite personal stake to sustain their challenge," the court said.
The appeals court also noted that California's emissions standard regulates automakers and not automobile dealers.
"This is a major victory for the millions of Americans that are working together to unleash smart policies to break our dependence on oil, save families money at the gas pump and reduce dangerous pollution," said the Environmental Defense Fund.
EPA officials could not immediately be reached for comment.
(Reporting by Tom Doggett; Editing by Marguerita Choy)