Tech earnings: Show me recovery

NEW YORK (CNNMoney.com) -- After a mixed assortment of tech sector earnings last week, the industry will face a tough test this week when sector giants IBM, Yahoo, Apple and Microsoft all report their quarterly finances.

Last week, chipmaker Intel (INTC, Fortune 500) and mobile device company Nokia (NOK) both reported steep declines in their earnings from a year ago, on plummeting sales amid a weak consumer environment. But the companies' CEOs both expected that computer and mobile device sales had reached a bottom, and growing demand for the electronics that fuel their businesses will soon result in better profits.

Another tech giant painted an opposite picture. Online search and advertising giant Google (GOOG, Fortune 500) reported that profits were up year-over-year, roundly beating Wall Street's expectations, but ad sales barely edged higher, missing analysts' forecasts. The company said the economic downturn has taken a toll on its core business, and it expected ad sales would worsen in the next six months as the recession wears on.

"This earnings season, we'll continue to see a tech sector that is just as mixed as ever: The good guys will continue to do OK, and the bad guys will get whacked," said Carl Howe, analyst with Yankee Group. "It's going to be a rough environment no matter who you are, because it's hard to say that things are all turned around right now."

The recession has hit each of the big tech companies that are reporting earnings next week in a unique way, and those who follow the companies say they will look for the tech firms to demonstrate how they are weathering the storm.

But just as important, analysts say IBM, Yahoo, Apple and Microsoft will need to point to future projects that will help the companies grow when the recession comes to an end.

"We'll be looking past the numbers to what else they have to point to," said Allen Weiner, analyst at tech consultant firm Gartner. "The impact of the economy is a given, so it will be important for companies to give us a peek into what they're doing for when the economy recovers."

IBM: On Monday, IBM (IBM, Fortune 500) will look to show it can still sell hardware at the same level it had in previous quarters, as companies scale back their spending on tech and move toward more cost-efficient cloud computing solutions. IBM will also likely try to demonstrate how it can become a productive player in the government's stimulus contracts.

Analysts surveyed by Thomson Reuters expect Big Blue's first-quarter earnings per share to increase 1% to $1.66. The tech behemoth is forecasted to post revenue of $22.5 billion, down 8% from the first quarter of 2008.

Yahoo: On Tuesday, Yahoo (YHOO, Fortune 500) has to convince investors that its cost-cutting strategy under its new chief executive, Carol Bartz, can effectively drive earnings growth in the future. The company will also try to show how a more open, social Yahoo can better compete with rivals Google and Microsoft.

"A lot of the numbers we'll see on Tuesday will be reflective of actions before Bartz came on board and not of where Yahoo is going," said Weiner. "Yahoo will try to focus on its non-financial accomplishments like their newspaper consortium business and accomplishments overseas."

The search and ad company is expected to have fared poorly in the first quarter. Analysts following Yahoo think the company will report income of 8 cents per share, down 29% from the same period a year earlier. Yahoo's revenue is expected to sink 11% to $1.2 billion.

Apple: On Wednesday, Apple (AAPL, Fortune 500) will need to show that its strategy of maintaining its computer price model, as the market shifts to cheaper computers, can drive sustainable profit in its Macintosh division. Apple will also likely point out the success of its iPhone application store initiatives.

"Apple will kill the numbers, as always," said Howe, who said the company will post particularly strong numbers this quarter on deferred revenue from its iPhone sales. "Their premium price scheme isn't a concern -- they'll be as affected by the downturn as Tiffany's."

Analysts forecast the computer and consumer electronics maker to earn $1.09 per share in the second quarter, down 6% from a year earlier, on revenue of $7.9 billion, which would be up 6% from last year.

Microsoft: On Thursday, Microsoft (MSFT, Fortune 500) will need to show that it can maintain software and operating systems sales as computer sales slump and customers migrate towards lower-end machines. Analysts say Microsoft's revenue has proven to be consistent in recent quarters due to its enormous size, but the company will be challenged to point to new initiatives that will help it take more market share away from competitors such as Google and Yahoo in search and advertising content.

The software giant will report its fiscal third-quarter earnings Thursday after the closing bell. Analysts expect the company to post earnings per share of 39 cents, down 17% from the same period last year. Revenue is forecast to fall 2% to $14.1 billion.