There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.
AT&T to Acquire DirecTV
Telecom-giant AT&T (T - Free AT&T Stock Report) has agreed to acquire DirecTV (DTV), the provider of satellite-based television, for roughly $49 billion. Stockholders of DirecTV will receive $95 per share in cash and AT&T stock. The deal reflects a period of consolidation within the cable television industry. It will allow AT&T to increase its customer base and service footprint. DirecTV’s Latin American presence provides AT&T with exposure to the fast-growing markets in that region. The deal is expected to result in cost savings of greater than $1.6 billion by the third year following closing, and should be nearly immediately accretive to free cash flow and adjusted earnings.
However, there are some regulatory concerns with the proposed merger. Assuming completion of the deal, AT&T would be acquiring a competitor, weakening customer power. The company has made several promises to allay these concerns. It has agreed to expand broadband service to residential and commercial buildings in rural areas that presently do not have the service. Moreover, the company will guarantee certain Internet speeds and a stand-alone DirecTV service option for three years following completion of the deal.
Recent Earnings Announcements
Cisco Systems (CSCO - Free Cisco Stock Report) posted lackluster, though better-than-expected, results for the fiscal third quarter (ended April 26, 2014). Revenues of $11.5 billion were down around 5%, on a year-over-year basis. Product sales declined 8%, though this was partly offset by a 3% rise in service revenues. Non-GAAP share earnings of $0.51 matched the prior-year tally. Both revenues and earnings per share exceeded consensus expectations. Companywide, orders were relatively flat on a year-over-year basis, though the book-to-bill ratio was greater than 1. Orders from domestic commercial and enterprise customers both grew at a good pace, and business appears to be stabilizing in Europe, as well. But the company continues to experience significant challenges in emerging markets. Demand from service providers has also been soft.
Hewlett-Packard (HPQ) posted strong bottom-line improvement for the April quarter. Revenue of $27.3 billion was just slightly below the prior-year figure. Personal Systems revenue was up 7%, though this was offset by declines in the Printing and Enterprise Services lines. However, operating expenses declined a bit, and interest costs were lower, too. Overall, share earnings of $0.66 marked a strong improvement over the $0.55 per share earned in the April period of last year.
Apple’s Noteworthy Announcements
Apple (AAPL) has been in the headlines for several reasons in recent times. First of all, the company has agreed to acquire Beats Music and Beats Electronics for a total of $3 billion. Beats Music is a subscription streaming music service that focuses on providing a personalized experience for each user. Beats Electronics makes the popular Beats headphones, speakers, and audio software. The deal is expected to close in the September quarter, subject to regulatory approvals.
Secondly, Apple has announced some new software upgrades at its Worldwide Developers Conference. This includes a new version of its iOS software for handheld devices which includes a revolutionary “HealthKit” feature, allowing users to easily monitor their fitness activity and important health metrics. This follows an earlier move by Samsung into the growing mobile health-data market. The company also introduced iCloud Drive and MailDrop. These new products make it easier to store and send files. Moreover, Apple unveiled next-generation software for Macs, which will be called Yosemite.
Lastly, shares of Apple are set to split shortly. The 7-for-1 stock split had previously been announced in late April. The stock will trade on a split-adjusted basis June 9th. While this will have no effect on the valuation, the lower share price may make the equity more appealing to some investors.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.