I found 54 US Technology Corps, which file with the SEC, which have already reported their calendar June 2012 quarter earnings, and with Pretax Income or Loss of more than $100 mil in any of the following quarters: 2Q 2012, 1Q 2012, 2Q 2011, or 1Q 2011.
These 54 US Technology Corps generated Total Pretax Income in the 2Q 2012 of $55.2 bil, an increase of 6% from the 2Q 2011. This was a significant deceleration from the 1Q 2012 earnings growth over the 1Q 2011 of 15%.
But you need to break down the earnings of these companies to get to the salient story.
Apple dominates these US Technology companies. Here’s the Pretax Income growth of Apple for the most recent six quarters over the prior year’s quarter:
1Q 2011……+96%
2Q 2011…..+123%
3Q 2011…....+61%
4Q 2011….…119%
1Q 2012……+97%
2Q 2012……+24%
Apple is truly a great company with great products. However, it is mathematically impossible to continue growing its earnings like it did in the above shown five quarters from 1Q 2011 to 1Q 2012. When the earnings numbers become so incredibly high, the earnings growth has to come down. We saw this in company after company when the Tech Bubble burst in 2000.
So yeah, Apple was a major contributor to the 2Q 2012 earnings growth deceleration of these 54 Technology companies.
Two Technology companies.....Seagate Technology and Western Digital.....,with more than half of their sales in the Asia Pacific Region, had their supply disrupted in the 2Q 2011 by the Japanese Earthquake and Tsunami. Thus their blowout earnings growth in the 2Q 2012 over the 2Q 2011 totaling a massive 507% is a bit inflated.
You are now left with 51 of these 54 Technology companies.
When you drill down more, you have 11 of them with Pretax Income above $1 bil in either the 2Q 2012 or the 2Q 2011, and you have the remaining 40 of them with Pretax Income under $1 bil.
These larger 11 Tech companies had their Total Pretax Income in the 2Q 2012 grow by 3% over the 2Q 2011, a shade above the 2% total earnings growth in the 1Q 2012 over the 1Q 2011.
But these 40 Smaller Tech companies had their Total Pretax Income in the 2Q 2012 decline by 18% from the 2Q 2011. And 24 of these 40 Smaller Tech companies, or 60% of them, had earnings declines in the 2Q 2012 from the prior year’s quarters.
So, how did these same 40 Smaller Tech companies do in the 1Q 2012? Well, a bit worse, with their Total Pretax Income declining by 23% from the 1Q 2011.
So what is causing this massive earnings growth deceleration in the past six quarters? After all, when you go back to a 3Q 2011 posting I made, the 60 largest US Technology companies other than Apple, had the following massive total earnings growth deceleration over the prior year’s period:
Annual 2010 over Annual 2009…..+49%
1Q 2011 over 1Q 2010………..…....…+17%
2Q 2011 over 2Q 2010……….....……..+9%
3Q 2011 over 3Q 2010………….....…..+6%
And then you see the above 51 US Tech companies (all other than Apple, Seagate Technology and Western Digital) had the following total earnings declines over the prior year’s quarter in the most recent three quarters:
4Q 2011 vs 4Q 2010……………down 2%
1Q 2012 vs 1Q 2011……….……down 5%
2Q 2012 vs 2Q 2011……………down 2%
Well, certainly a very weak European economy, coupled with the weak Euro resulting in these profits getting translated into a stronger US dollar, is causing havoc on the earnings of US Technology companies which have a significant presence in Europe.
But there is a much more significant explanation for this earnings deterioration in 2011 and the first half of 2012.
I think this massive earnings deterioration in 2011 and the first half of 2012 is due predominately to the switch from Moderate Democratic control to an Ultra Conservative Republican control, particularly in the US House.
The US economy stopped to a walk by the US House Republicans stopping, and the US Senate Republicans filibustering, nearly every Obama Administration economic initiative. And the House Republicans abandoning the Grand Bargain Talks with the Obama Administration, the subsequent US Debt downgrade, and the unsuccessful Super Committee, all clearly showed that the US Congress could not get anything of substance done, and this severely harmed the US economy.
And the killing of the 100% first-year tax depreciation on equipment purchases in 2012 had a very harmful impact on US Technology and US Manufacturing companies.
The US economy is shouting out for bold, targeted, quick-hitting fiscal measures like the 100% first-year tax depreciation on equipment and computer software, highly accelerated first-year tax depreciation on buildings and building remodelings, and even lucrative investment tax credits on equipment, building, and computer software investments. And it only makes sense to put in some measures which allow these very lucrative business tax incentives only if these companies increase their US payroll counts, which must be retained for a reasonable number of years or the tax benefits are recaptured.
And the first-year tax depreciation measures would be particularly explosive in the remainder of 2012 when combined with President Obama’s Business Tax Reform, which reduces business income tax rates starting in the following year.
But most US Congressional Republicans, in a Mean-Spirited Party over Suffering People Strategy, are stubbornly determined to keep the US economy from improving and US job creation from occurring at least until after the upcoming November 2012 election. They are fervently praying for an increase in the US Unemployment Rate in July, August, September and October 2012. They think that will cause voters to remove President Obama from office.
But you know what? If Mitt Romney is elected President, and if the US Senate and the US House are both in Republican control, I am pretty certain you will see the US Unemployment Rate continue to rise, and average in the low double digit percentages for the last three years of Romney’s Presidential term.
Why? Because even though the US economy is substantially better than it was at the end of 2008, it is still very fragile. And Romney’s main economic plan is to simply reduce the income tax rate sharply on both Corporations and the wealthy, and to let that trickle down to US job creation.
How incredibly naïve! US businesses have consistently shown that when they get a no-strings-attached reduction in the tax rate, they hire no one. Thus, the US Deficit will balloon further, US unemployment will continually rise, US underemployed will rise, the middle class will shrink further, and the poor will be crushed. And the gap between the very rich and everyone else will be substantially expanded further.
The only good thing about the above scenario is that with these disastrous economic effects occurring in the next four years, US citizens will be shouting out for Obama’s return to office in 2016.....and the election would be a landslide.
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I use Pretax Income rather than After-tax Net Income, since so much of the change in effective income tax rates just happens due to financial engineering.
Below here is the Pretax Income (PTI) or Pretax Loss of each of these 54 US Technology companies for the 2Q 2012 and the 2Q 2011.
| Increase | Increase | |||
| PTI | PTI | (Decrease) | (Decrease) | |
| 2Q 2012 | 2Q 2011 | Amount | % | |
| mils $s | mils $s | mils $s | ||
| Technology Corps | ||||
| Apple | 11,861 | 9,551 | 2,310 | 24% |
| Supply Disruptions Caused by Japan Equake and Tsunami in 2011 | ||||
| Seagate Technology | 1,013 | 129 | 884 | 685% |
| Western Digital | 801 | 170 | 631 | 371% |
| Total of Both | 1,814 | 299 | 1,515 | 507% |
| PTI > $1 Bil | ||||
| Microsoft | 6,552 | 6,319 | 233 | 4% |
| IBM | 5,161 | 4,885 | 276 | 6% |
| Oracle | 4,382 | 4,170 | 212 | 5% |
| Intel | 3,934 | 3,931 | 3 | 0% |
| 3,639 | 3,085 | 554 | 18% | |
| Cisco Systems | 2,779 | 2,203 | 576 | 26% |
| Hewlett Packard | 1,979 | 2,892 | (913) | -32% |
| Qualcomm | 1,581 | 1,274 | 307 | 24% |
| Intuit | 1,104 | 1,052 | 52 | 5% |
| Accenture | 1,066 | 958 | 108 | 11% |
| Dell | 792 | 1,170 | (378) | -32% |
| Total all 11 | 32,969 | 31,939 | 1,030 | 3% |
| PTI < $1 Bil | ||||
| EMC | 904 | 764 | 140 | 18% |
| Ebay | 733 | 604 | 129 | 21% |
| Texas Instruments | 576 | 909 | (333) | -37% |
| Applied Materials | 387 | 686 | (299) | -44% |
| CA | 370 | 333 | 37 | 11% |
| Xerox | 351 | 434 | (83) | -19% |
| 336 | 399 | (63) | -16% | |
| Thermo Fisher Scientific | 318 | 255 | 63 | 25% |
| KLA Tencor | 306 | 334 | (28) | -8% |
| Adobe Systems | 295 | 259 | 36 | 14% |
| Agilent Technologies | 293 | 260 | 33 | 13% |
| Motorola Solutions | 240 | 190 | 50 | 26% |
| Symantec | 237 | 257 | (20) | -8% |
| NetApp | 215 | 208 | 7 | 3% |
| VMware | 214 | 190 | 24 | 13% |
| Analog Devices | 211 | 297 | (86) | -29% |
| Paychex | 198 | 184 | 14 | 8% |
| Check Point Software | 190 | 161 | 29 | 18% |
| SAIC | 183 | 207 | (24) | -12% |
| Broadcom | 163 | 250 | (87) | -35% |
| Roper Industries | 163 | 155 | 8 | 5% |
| Altera | 159 | 238 | (79) | -33% |
| Maxim Integrated Products | 158 | 184 | (26) | -14% |
| Xilinx | 155 | 180 | (25) | -14% |
| Flextronics | 149 | 153 | (4) | -3% |
| Amazon.com | 146 | 225 | (79) | -35% |
| Linear Technology | 141 | 175 | (34) | -19% |
| Cerner | 139 | 111 | 28 | 25% |
| Jabil Circuit | 129 | 127 | 2 | 2% |
| F5 Networks | 112 | 90 | 22 | 24% |
| Marvell Technology | 95 | 148 | (53) | -36% |
| Juniper Networks | 89 | 157 | (68) | -43% |
| Citrix Systems | 86 | 101 | (15) | -15% |
| Nvidia | 77 | 156 | (79) | -51% |
| Tech Data | 76 | 66 | 10 | 15% |
| Yahoo | 75 | 185 | (110) | -59% |
| Lam Research | 63 | 137 | (74) | -54% |
| Lexmark | 52 | 131 | (79) | -60% |
| Sandisk | 19 | 365 | (346) | -95% |
| Micron Technology | (222) | 164 | (386) | -235% |
| Total all 40 | 8,581 | 10,429 | (1,848) | -18% |
| Grand Total all 54 | 55,225 | 52,218 | 3,007 | 6% |
