Tech Stock News And Analysis

OVERVIEW: Google, the most-used U.S. search engine, continued to gain share of queries during the quarter. More searches translate into greater revenue from text ads that appear on Google's own and partner Web sites.

The Mountain View, Calif.-based company extended its reach by starting to sell advertising space in nearly 100 magazines, 50 newspapers and 700 radio stations.

In an move to defend its massive book-scanning plan from copyright lawsuits, Google subpoenaed information about book scanning and search activities by competitors Microsoft Corp., Amazon.com Inc. and Yahoo Inc., among others. Yahoo and Amazon rejected the request.

Google also added free Web-based word processing and spreadsheet software to site, a move that could threaten Microsoft Corp.'s dominant Office desktop programs.

The company promoted its online payment system, Checkout, with discounts and promotions during the holiday shopping season, a move that threatens eBay Inc.'s competing system, PayPal.

But the biggest deal by far was the company's acquisition of YouTube, a viral video-sharing site, for $1.76 billion.

Without providing details, Google disclosed that its own video service was sued for copyright infringement during the quarter. Google and YouTube both made a flurry of content distribution deals with record labels just before the acquisition, and it remains to be seen whether the YouTube buyout will spark more lawsuits.

Google said it set aside more than $200 million in stock from the deal, which it could possibly use toward copyright-related legal bills.

BY THE NUMBERS: Analysts polled by Thomson Financial expect Google to earn $2.90 per share on $2.19 billion in revenue.

For the fiscal year, analysts are looking for a profit of $10.32 on sales of $7.25 billion.

ANALYST TAKE: In a Jan. 16 note to investors, Lehman Brothers analyst Douglas Anmuth wrote that Google's gain in market share may help push results above Wall Street's expectations.

The company also tweaked its search-ad recipe to show more relevant ads on shopping-related searches, which may have boosted results during the holiday shopping rush.

"We continue to believe that the combination of personalization and behavioral targeting will serve as a major driver for online advertising over time," Anmuth wrote, lauding Google's improvements on these fronts.

The analyst also wrote that he expects Google's international business, which grew faster than domestic business in the third quarter, remained strong. A weaker U.S. dollar during the three-month period will also fuel revenue growth, he wrote.

Anmuth reiterated his "Overweight" rating and $560 price target on the stock.

Citigroup analyst Mark Mahaney voiced concerns about how big a bite Checkout promotions and the YouTube integration might take out of earnings, but emphasized that the core business would not be responsible for any shortfalls.

Mahaney also noted market share gains and foreign exchange trends. To support his "Buy" rating and $600 price target, the analyst also cited Google's increasingly popular non-search products, such as the Gmail e-mail service and Picasa photo organization software, distribution deals with Dell Inc. and others as well as the addition of behavioral targeting to the search-ad algorithm.

STOCK PERFORMANCE: Shares of Google rose 15 percent during the quarter, ending December at $460.48 on the Nasdaq. In the past 52 weeks, the stock traded as high as $513 and as low as $331.55.

For the three months ended Dec. 31, the server and software maker earned $126 million, or 3 cents per share, up from a net loss of $223 million, or 7 cents per share, in the year-ago period.

Fiscal second-quarter revenue totaled $3.57 billion, up 7 percent from $3.34 billion a year earlier.

Excluding special expenses, such as $58 million in stock-based compensation charges and $26 million in restructuring costs, Sun earned $148 million, or 4 cents per share.

Shares in the Internet media company rose more than 5 percent to $28.40 in extended trading from its Nasdaq close at $26.96, after its management said it was rolling out the new system for selling Web search advertising, dubbed Panama.

The comments helped overcome investor concerns over the company's conservative first-quarter and full-year forecasts.

"We have successfully transitioned the large majority of our revenue to the new search system known as Project Panama," Chief Executive Terry Semel said on a conference call with analysts. "We believe this will deliver more relevant text ads to users, which in turn should create greater volume of high-quality leads."

Yahoo will introduce its new system for ranking Web ads in the United States as of February 5, about a month earlier than expected by Wall Street analysts, and it was on track to bring it to international clients in the second quarter.

Texas Instruments said it earned $668 million, or 45 cents per share, in the fourth quarter, compared with $655 million, or 40 cents per share, in the same period last year.

Revenue was $3.46 billion, up 4 percent from $3.32 billion in the same period a year earlier.

Monday's results were buoyed by a 5-cent-per-share tax benefit from a federal research and development bill passed into law late last year. Analysts surveyed by Thomson Financial expected earnings of 38 cents per share on $3.43 billion in revenue.

Despite the gains, TI said it was making several changes to increase efficiency and profitability in the coming years.

TI already uses a mixture of its own factories and other suppliers to produce semiconductors, and company executives said that outsourcing model would be extended to include the development of certain digital chips.

"That level of redundancy no longer makes sense," said Ron Slaymaker, TI's vice president for investor relations. "This is an area where we realize we can gain further efficiencies."

The company also said it will close a small digital chip fabrication plant in Dallas and eliminate 500 jobs over the coming year as part of a cost-cutting measure designed to save some $200 million annually.

Slaymaker said growth in the fourth quarter slowed compared with the third quarter due to a combination of seasonally weaker sales, customers who were still reducing chip inventories and TI's wireless customers, who were selling more cheap low-end handsets than higher-end, more profitable devices.

TI said it believes earnings in the first quarter will range from 28 cents to 34 cents per share on revenue of $3.01 billion to $3.28 billion, just below Thomson Financial analysts' forecast of 35 cents a share. TI will release a more detailed midquarter update in March.

"Challenges continue in the first quarter as we operate in an environment where customers want lower levels of inventory and where growth in the wireless market is skewed to low-priced, basic-featured cell phones instead of higher-priced, full-featured phones," Rich Templeton, TI's president and chief executive officer, said in a statement.

Analyst Cody Acree of Stifel Nicolaus & Co. said the fourth quarter was solid but he was concerned about the company's weak guidance moving into the first quarter. He agreed, however, that TI's decision on chip outsourcing was a more streamlined approach.

He said TI, like other chipmakers, faces the tricky proposition of trying to predict now what demand will be for its chips in a few months.

"Right now there's a lot of second guessing," Acree said.

For all of 2006, the Dallas company earned $4.34 billion, or $2.78 per share, on revenue of $14.25 billion, compared with earnings of $2.32 billion, or $1.39 per share, on sales of $13.39 billion in 2005.

TI shares have traded between $26.77 and $36.40 over the last year. Before the results were released, the shares rose 20 cents to close at $28.59 on the New York Stock Exchange. They gained 62 cents, or 2.2 percent, to $29.22 in after-hours trading.