Holiday Sales Help Push Profit Up at Microsoft

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Mobile Ads Fuel a Jump in Profit at Facebook

After all, that’s how half of his company’s users connect to the social network and where half of its advertising revenue comes from.

He just has to be careful not to scare away the kids because the youngest ones are already starting to go elsewhere.

Facebook, which operates the largest online social network, reported Wednesday that its profits doubled in the third quarter, to $621 million, after excluding expenses related to stock options.

The company’s revenue rose 60 percent, to $2.02 billion, compared with last year’s third quarter. Most of that, about $1.8 billion, came from advertising.

Perhaps most important for Facebook’s future as an advertising-driven company in a world of iPads and Android smartphones, the company noted that mobile ads accounted for 49 percent of its advertising revenue, up from 41 percent in the second quarter. Facebook said prices for mobile ads remained high, and users were clicking on them in their news feeds more frequently.

That bodes well, analysts said, for its smaller rival, Twitter, which takes a similar approach to mobile ads and is preparing to sell stock to investors in an initial offering as soon as next week.

Clark Fredricksen, a vice president with eMarketer, a research firm, said Twitter would benefit from Facebook’s efforts in mobile because the larger company had been investing heavily in educating marketers and users about mobile ads.

“Facebook has been a major force in helping advertisers and users get more comfortable with seeing and buying mobile ads,” he said.

Other big Internet companies like Yahoo and AOL are benefiting less from mobile ads, he said, because their ads are fragmented across various sites and are less appealing to advertisers.

The Facebook results beat Wall Street’s expectations for both revenue and profits, and cemented the company’s position as the leading platform for mobile display ads for products like games and sugary snacks. (Google, which eMarketer estimates will account for roughly half of the world’s $118 billion in digital advertising this year, is still the overall leader in mobile ad sales because of its dominant position in search ads.)

But Facebook, whose stock has doubled in the three months since its last earnings report, also tried to temper expectations for endless fast growth.

In a conference call with analysts, the company’s chief financial officer, David Ebersman, warned that the company would not keep increasing the percentage of ads in its users’ news feeds, especially for mobile users.

“This is important because increasing ads in News Feed has been a meaningful driver of our revenue growth in 2013,” he said. “So this should be factored into your expectations for next year.”

Although he did not disclose how many ads Facebook was showing its users, the company said this year that roughly 1 in 20 posts sent to users’ news feeds were ads.

Shares of Facebook, which were down slightly in regular trading to $49.01, initially soared about 12 percent in after-hours trading following the earnings report. But the stock quickly lost the gains as investors digested the results.

LinkedIn, another leading social networking company, issued a similar warning late Tuesday, saying that its sizzling growth rate could not continue — hardly surprising, given the law of large numbers, but still a shock of cold water to investors. LinkedIn shares fell more than 9 percent on Wednesday.

Mr. Ebersman also confirmed an observation made by outside researchers that teenagers were using Facebook less. Although the overall engagement of teenagers remained stable, he said, younger teenagers were indeed using the service less.

It’s unclear how big a problem that will be for the company since those younger users are in part flocking to Instagram, a photo-sharing service owned by Facebook that just began showing ads this month.

“Facebook is the obvious audience for advertisers looking to reach mobile users,” Mr. Fredricksen said. “They are capturing market share by leaps and bounds on an annual and quarterly basis.”

Ronald Josey, a senior research analyst following the Internet industry for JMP Securities, said Facebook’s results were solid. “They’ve learned mobile,” he said. Clearly they have the right product for advertisers.”

But even before Mr. Ebersman’s comments, Mr. Josey predicted that the company would put a damper on the exuberance that has doubled the price of the company’s stock in the last three months. “They are going to try to temper expectations,” he said.

The company also continued to add to its user base slightly. In the third quarter, 1.19 billion people used the site at least once a month, up from 1.15 billion in the second quarter.

Facebook is expected to account for 5.41 percent of the $117.6 billion global digital ad market this year, up from 4.11 percent last year, according to eMarketer.

Facebook’s presence in the mobile ad market is growing especially quickly. The company will account for 15.8 percent of worldwide mobile ad spending in 2013, according to eMarketers, up from 5.35 percent last year.

Mark Mahaney, an analyst with RBC Capital Markets, said Facebook posted its highest profit margins in a year and half and built on its mobile strength.

“But you can’t keep accelerating forever,” he said.

Chip Sales Help Push Profit Up at Samsung

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Cisco Plans to Cut 4,000 Jobs, as It Posts Profit Gain

Cisco’s Warning: On “Nightly Business Report,” Jon Fortt of CNBC weighed in on Cisco Systems, whose chief executive on an earnings call announced a reduction of about 5 percent of its staff, despite strong revenue.

Signs of Rebound as Sony Posts a $35 Million Profit

Sony of Japan posted net income of 3.5 billion yen ($35 million) in the quarter that ended June 30, after a loss of 24.6 billion yen in the period a year earlier. The results were helped by a weaker yen and increased sales of smartphones. Revenue increased 13 percent, to $17.3 billion.

Company executives did not comment on a report in the Nikkei business newspaper that Sony was “leaning toward” rejecting the breakup proposal from Daniel S. Loeb, a New York hedge fund manager whose firm, Third Point, holds a 7 percent stake in Sony. Mr. Loeb wants the company to separate the entertainment unit from the electronics and financial divisions by selling stock in the unit and giving it its own board.

“We are going to discuss this carefully and then come to a solid conclusion,” Masaru Kato, Sony’s chief financial officer, said in a conference call with analysts.

“Improving the profitability of electronics is the biggest priority of Mr. Hirai,” he added, referring to the chief executive, Kazuo Hirai. “At the same time, entertainment and financial services remain core parts of the business.”

Mr. Loeb stepped up his campaign for a breakup this week in a letter to Third Point investors in which he attacked Sony management over the weak performance of Sony’s Hollywood studio business. That unit has been hurt by poor box-office receipts for recent films like “After Earth” and “White House Down.”

In his letter, Mr. Loeb compared those films to the notorious Hollywood flops “Ishtar” and “Waterworld,” and added that the studio business was “characterized by a complete lack of accountability and poor financial controls.”

Sony confirmed the weak performance of the studio business in the quarter, saying sales had fallen 16 percent in constant currency terms.

Later in the day, in Hollywood, the company announced a significant and surprising move in its film operation, saying it would revive its semidormant TriStar unit as a movie and television venture in partnership with Thomas E. Rothman, who this year stepped down as chairman and chief executive of Fox Filmed Entertainment.

The new venture promises to bring back a film and television label that until the late 1990s was operated as a fully staffed studio, run in parallel with the Columbia Pictures unit of Sony. Its peak moments included the successes of “Jerry Maguire” and “Terminator 2: Judgment Day.”

Mr. Rothman, who expressed support for Sony’s managers, declined to say how much Sony would invest in the studio. He and company executives said Sony was expected to make four films a year, and to split its activities evenly between television and film. Mr. Rothman said he would have an equity stake in the venture and was open to outside investment, though he expected to begin with Sony’s money.

In a statement, Sony Pictures Entertainment said Mr. Rothman would report to Michael Lynton, who is chief executive of that unit, and Amy Pascal, a chairwoman.

Speaking separately on Thursday, Ms. Pascal and Mr. Rothman said negotiations for the TriStar venture, which will be called TriStar Productions, began well in advance of the first round of criticism by Mr. Loeb.

Ms. Pascal said early conversations with Mr. Rothman had centered on a venture that might provide the smaller, artier films for which Mr. Rothman became known when he years ago started Fox Searchlight for the News Corporation and its 20th Century Fox unit. Ultimately, she said, the partnership was drafted to allow for more scope. “We want to make movies that make money,” she said.

In Sony’s earnings report, its electronics business showed clear signs of a turnaround.

Although sales of video cameras and compact digital cameras have been caught up in an industrywide slide, Sony reported a “significant increase” in quarterly sales of smartphones, to 9.6 million from 7.4 million in the period a year earlier. Sony said average selling prices had risen as well, helping the mobile division post a profit of $60 million, after a loss of $28.1 million in the year-ago period.

Although analysts have questioned the value of retaining the broad array of product lines in which the company competes, they said the improved outlook had bolstered the position of Mr. Hirai as he tries to persuade investors of the merits of keeping the company intact.

“It’s very clear that the company is focused on fixing electronics, and these results show that the strategy seems to be working,” said Damian Thong, an analyst at Macquarie Securities.

Eric Pfanner reported from Tokyo and Michael Cieply from Los Angeles.

Samsung’s Profit Rises, but So Does the Competition

Samsung, which is based in Suwon, South Korea, said net income rose to 7.77 trillion won, or $6.9 billion, from 5.19 trillion won a year earlier. Sales rose to 57.46 trillion won, from 47.6 trillion won.

But the report showed a decline in earnings from the first quarter in Samsung’s mobile phone business despite the introduction of a new flagship model, the Galaxy S4.

Though the S4 has been selling at a brisk pace, it has fallen short of some analysts’ expectations. Promotional events like an introductory gala for the S4 at Radio City Music Hall have driven up marketing costs, while rivals continue to roll out competing models.

“The strong growth streak for the smartphone market is expected to continue in the third quarter, albeit at a slower pace,” Samsung said in a statement.

Market reaction to the report from Samsung was muted because the company issued an earnings forecast earlier this month; the results reported Friday were broadly in line with that outlook, though below previous expectations.

The results from Samsung follow the earnings report from the company’s chief rival, Apple, which showed similar trends in the smartphone business.

Apple reported earnings that beat Wall Street expectations, but its profit declined from a year earlier and its revenue was flat. While Apple’s posted strong iPhone sales in the United States, the company showed weakness in China and in sales of iPads.

In recent months, the shares of Apple and Samsung have been hammered by investors, who worry that even as the companies report continued growth in sales of smartphones, they will struggle to maintain their momentum.

“In a way, Apple and Samsung have become victims of their own success,” Pete Cunningham of the research firm Canalys said before the Samsung results were released. “When these companies report many billions of profits every quarter, it’s hard to say they are doing anything wrong.”

Many say the high end of the smartphone market, which Samsung and Apple dominate, is looking saturated. Most wealthy consumers in developed markets already own such devices, so growth is increasingly occurring in lower-price brackets in developing markets, where Apple does not compete.

Samsung, with a broader product range, may be better positioned, analysts say, though it faces stiff competition at the low end of the market from Chinese makers.

For expensive phones, the companies face renewed competition from Sony, HTC and Nokia, though analysts say innovations in smartphone design and technology are becoming more incremental.

“If you combine all these players and look at what they are doing, it’s hard for Samsung or Apple to keep growing market share,” said Bryan Wang, an analyst at Forrester Research. “But the expectations for both companies are still high.”

IDC, a research firm, said Samsung’s share of the smartphone market slipped to 30.4 percent in the second quarter, from 32.2 percent a year earlier.

Samsung’s smartphone sales rose by 43.9 percent, outpacing Apple, which showed a 20 percent gain. But smaller smartphone makers that focus on lower-cost devices did even better, with Lenovo and LG, for example, more than doubling their sales.

“The smartphone market is still a rising tide that’s lifting many ships,” said Kevin Restivo, senior research analyst at IDC, in a statement. “Though Samsung and Apple are the dominant players, the market is as fragmented as ever. There is ample opportunity for smartphone vendors with differentiated offerings.”

While Samsung does not break out the number of devices it sells on a quarterly basis, another research firm, Strategy Analytics, estimated that the company shipped 76 million smartphones in the second quarter, 56 percent more than a year earlier and more than double Apple’s total of 31.2 million.

With growth picking up in the low end, Strategy Analytics said, the smartphone market over all is expanding faster than it was a year ago. That helps Samsung in another way, because the company also is the world’s biggest producer of semiconductors, an important component in smartphones and other electronic devices.

Samsung said operating profit in its semiconductor division rose to 1.76 trillion won from 1.03 trillion won a year earlier, as it experienced strong demand from its own mobile business, as well as from other phone makers to which it supplies chips.

But Samsung said its television business was hurt by sluggish demand in Europe, where an economic recovery has struggled to take hold.

Microsoft Profit Misses as Surface Tablets Languish; Shares Drop

The stock fell 5 percent after hours from 5-year highs.

The massive charge underlines the struggles of the world's largest software company, which last week announced a deep reorganization to transform itself into a "devices and services" leader, but is struggling to make mobile computing as attractive as Apple Inc or Google Inc.

"That's the biggest miss we've ever seen from Microsoft, the biggest that I could remember," said Brendan Barnicle, an analyst at Pacific Crest Securities. "It looks like everything was weak."

Before the sell-off late Thursday, Microsoft shares had risen 32 percent this year, beating a 19 percent rise in the Standard & Poor's 500 index.

Microsoft said the $900 million charge was related to its Surface RT tablet, the version of its tablet running on ARM Holdings-designed chips. The Surface was meant to challenge Apple's iPad when it was launched alongside Windows 8 in October, but has not sold well.

Earlier this week, Microsoft said it was drastically cutting prices and expanding distribution of the model to entice buyers, reducing the value of Surface devices in its inventory.

"We do know we have to do better, particular in mobile devices," Amy Hood, Microsoft's new chief financial officer, said in a telephone interview. "That's a big reason we made the strategic organizational changes last week."

Microsoft's biggest shake-up in five years, unveiled by Chief Executive Steve Ballmer last week, creates a single devices unit for the first time at the company, suggesting that it will double down on its so-far unsuccessful move into hardware.

Redmond, Washington-based Microsoft reported fiscal fourth-quarter profit of 59 cents per share, compared with a 6 cents per share loss in the year-ago quarter when it wrote off the cost of a failed acquisition.

Wall Street had estimated earnings of 75 cents per share, on average, according to Thomson Reuters I/B/E/S. Excluding the Surface charge, Microsoft reported 66 cents per share profit, a less drastic miss.

Revenue rose 10 percent to $19.9 billion, helped by sales of Microsoft's Office suite of applications, but fell short of analysts' average estimate of $20.7 billion.

Sales of Windows rose slightly, but only because of the inclusion of some deferred revenue, weighed down by an estimated 11 percent dip in PC sales in the quarter.

Microsoft's Windows 8 has sold more than 100 million licenses since launching in October, but is struggling to win over many consumers confused by the new design which is more suited to tablets than traditional PCs. Acknowledging this, Microsoft is releasing a revamped version of the system called Windows 8.1 later this year, which brings back the iconic 'start' button.

(Additional reporting by Liana Baker in New York; Editing by Richard Chang)

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Revenue Falls, but Profit Tops Forecast at I.B.M.

The company’s software delivered a strong performance, profit margins rose, and new contract signings in its major services like data analysis rose sharply — an encouraging sign of future business. But its hardware business continues to struggle.

“The results are positive compared to earnings expectations,” said A. M. Sacconaghi, an analyst at Sanford C. Bernstein. “But it’s mixed.”

I.B.M. and investors focused on the positive side. The company raised guidance for earnings per share for the year by 20 cents to “at least $16.90 a share.”

In after-hours trading, I.B.M. shares rose 2.6 percent, or more than $5. The stock closed the regular trading session up 70 cents at $194.55.

The company’s net income fell 17 percent, to $3.2 billion, or $2.91 a share, compared with nearly $3.9 billion in the year-ago period. That includes a charge of about $1 billion for trimming its work force. I.B.M. announced in April that it would take that charge this quarter and that most of the affected workers would be outside the United States.

In recent years, I.B.M. has taken annual charges that average several hundred million dollars for what it calls “work force rebalancing.” The company sheds workers in higher-cost nations and in businesses that are being trimmed, and it adds employees elsewhere, especially in India.

I.B.M. says the process reflects both financial discipline and globalization as it hires and invests in faster-growing markets. The net effect has been an expansion of its global work force to more than 430,000.

What is mainly different this time, analysts say, is that the work force charge is being taken in a single quarter rather than being spread across an entire year. The company’s operating earnings, which exclude the charge for work force cuts, rose 3 percent, to $4.3 billion, or $3.91 a share. The result was well above the average analyst estimate of $3.77 a share, according to Thomson Reuters.

Operating earnings per share rose 8 percent, reflecting fewer shares outstanding, because I.B.M. steadily buys back its own shares. Revenue fell 3 percent, to $24.9 billion, below the Wall Street forecast of $25.4 billion.

I.B.M. is the largest supplier of information technology — hardware, software and services — to corporations and government agencies worldwide, and its results are watched as a guide to broader trends in business technology spending.

Globally, the growth in technology spending has softened, as once-hot markets like China and Brazil cool and Europe remains in an economic slump. For I.B.M., the China business was soft, but Brazil did well, Mark Loughridge, I.B.M.’s chief financial officer, said in a conference call.

I.B.M. has met the challenge of economic turmoil and new waves of technology more nimbly than most of its established rivals. It moved quickly to expand in emerging markets, shift to higher-profit products and services, and cut costs.

But in the first quarter of this year, I.B.M. reported disappointing earnings, below analysts’ forecast for the first time since early 2005.

Businesses that I.B.M. has earmarked for growth are thriving. One of these is software and services for mining vast amounts of data from the Web, sensors and smartphones, to be used to find ways to increase sales or cut costs.

But the question for established companies like I.B.M. is whether newer, more profitable businesses can grow fast enough to offset the competition from emerging rivals and new technology.

A prime example is cloud computing, a fast-growing market for computing sold to businesses as a service over the Internet. The low-cost cloud model threatens traditional technology suppliers. Amazon is the early leader in the cloud business.

I.B.M. is investing in cloud computing. Last month, it announced plans to buy SoftLayer Technologies, a cloud computing company, in a deal valued at about $2 billion.

“I.B.M. is making strong plays in new technologies like cloud, but the question is whether it is moving fast enough,” said Frank Gens, chief analyst at the International Data Corporation, a research group.

In the past, I.B.M. has also aggressively pulled out of areas with declining margins, like its personal computer business, which it sold to Lenovo in 2005.

Recently, I.B.M. has talked to Lenovo about a deal for I.B.M.’s unit that sells so called industry-standard data center computers, typically powered by Intel chips, analysts say. Talks apparently broke off in May, when the two sides could not agree on a price. But Mr. Loughridge said I.B.M. was in “active discussions.” That business represents about $5 billion in sales for I.B.M., but competition is fierce.

Cisco Rides Technology Trends to 14.5% Increase in Profit

The world’s largest maker of networking gear has stumbled in recent years as companies bought less and new competitors arose. In response, Cisco moved into technologies like online video, cloud computing and delivery of high-speed Internet over wireless networks.

Those investments appear to be paying off. On Wednesday, Cisco said its sales of switches and routers were basically flat in its third fiscal quarter, which ended April 27. Sales of equipment for big cloud-computing data centers, video and wireless systems, however, were substantially higher.

“This is where the action is,” said John Chambers, Cisco’s chief executive, in an interview after the earnings announcement. “We bet on some of these seven years ago, now they’re paying off.”

Mr. Chambers wants Cisco to diversify into building sophisticated networked systems with many parts. That could prompt growth of its main switching and routing businesses, because it would mean even more Internet traffic from sensors, consumer devices, and industrial products to and from the Internet.

Cisco needs something to revive those businesses, which still make up nearly half of its revenue. Sales of switching gear, Cisco’s biggest sector, fell 2 percent compared with a year ago, while router sales were flat. Video equipment sales grew 30 percent, wireless equipment rose 27 percent and data center gear was up 77 percent, but their total revenue was about half that of switches and routers.

Over all, Cisco’s net income rose 14.5 percent compared with a year earlier, to $2.5 billion, or 46 cents a share. Revenue was up 5.4 percent, to $12.2 billion. By the nonstandard accounting measures popular with many tech companies, Cisco had net income of 51 cents a share, up 6.3 percent from a year earlier. Wall Street analysts, based on a survey by Thomson Reuters, had projected net income of 49 cents a share and revenue of $12.18 billion.

“The new products got them out of what looked like a tough quarter,” said Eric Suppinger, an analyst with JMP Securities in San Francisco.

Results for Cisco, which is based in San Jose, Calif., are often taken as a barometer of overall business spending. Sales in North America rose 10.4 percent, to $7.1 billion, and Mr. Chambers described the business environment as “slow but steady.” Sales in Europe were lower, he said, primarily because of weakness in countries like Spain. “You’re beginning to see Europe bottom out, with the exception of the south,” he said.

Cisco shares were up more than 8 percent in after-hours trading, after closing down 0.28 percent at $21.21.

Sony Posts a Small Profit, Its First in 5 Years

The Tokyo-based electronics and entertainment giant said that it had booked a net profit of 43 billion yen, or $435 million, in the financial year that ended March 31. That compares with a loss of 456.7 yen billion ($4.6 billion) a year earlier. Sales grew 4.7 percent to 6.8 trillion yen ($68.4 billion).

Sony said it expected net profit to increase 16 percent in the current year to 50 billion yen ($505 million). It projected that sales would rise 10 percent this year to 7.5 trillion yen after the company releases a new video game console, the PlayStation 4, during the holiday season and bolsters its smartphone offerings.

The weaker yen, which makes Japanese products more price-competitive in foreign markets, was especially pronounced in the fourth quarter, from January through March. Sony said net profit was 93.9 billion yen ($949 million), compared with a net loss of 255.2 billion yen ($2.6 billion) in the same quarter a year earlier.

Higher revenue from its financial services unit contributed significantly to full-year profits. Sony has also streamlined to claw its way back to profit, dissolving flat-panel television manufacturing ventures with Sharp and Samsung, shedding its chemical product business and selling off its office buildings, including its New York headquarters, for $1.1 billion.

“We set out this year with the aim of doing everything we can to get back in the black,” Masaru Kato, Sony’s chief financial officer, said in a conference call with analysts in Tokyo. “This year, we absolutely intend to make a profit in electronics.”

Kazuo Hirai, who took over as chief executive in April 2012, is trying to revive Sony’s electronics division, which continues to lose money. Last week, Sony announced that dozens of top executives had agreed to forgo bonuses after continued red ink in the unit.

Mr. Hirai faces a struggle. Once a consumer electronics powerhouse, Sony has in recent years been outshone by the likes of Apple and outgunned by the marketing and manufacturing prowess of Samsung.

Profits in the games division were lower last year after the disappointing performance of its PlayStation Vita hand-held machine, which made its debut in late 2011. Sony slashed the device’s price this year.

Though Sony booked an annual profit, its television business lost money for the eighth straight year, with sales slumping 30 percent from a year earlier. But its losses have been narrowing as Sony has outsourced its panel-making, falling by 137.9 billion yen ($1.4 billion) from a year earlier to 69.6 billion ($707 million). Sony said it expected to finally break even in televisions this year.

The company will be helped by a major decline in the value of the yen, part of the economic policy of Prime Minister Shinzo Abe of Japan. The weaker yen buttresses the bottom line of exporters like Sony by increasing the value of their overseas earnings. Sony said, however, that as its business became more global and the company incurred more of its costs in dollars, currency fluctuations would have less of an effect.

Sony also struggled in its digital camera and video business, hurt by a shrinking market for compact cameras and camcorders as more users chose to snap photographs and take video with their smartphones. However, Sony has found some success with high-end cameras with interchangeable lenses for photography buffs.

Sales in Sony’s film business grew 11 percent, thanks to blockbusters like the James Bond movie “Skyfall” and “The Amazing Spider-Man.” The sluggish market for packaged music continued to weigh on the music division, though hits like “Take Me Home” and “Up All Night” from the boy-band sensation One Direction helped stave off a sales decline.

Sony is still seeking to exploit the relationships between its hardware business and its vast catalog of music and films. Though its entertainment business has generated healthy profits, the company has yet to deliver on its long-promised strategy of leveraging that material to sell more electronics — for example, by offering exclusive content on Sony devices.

High & Low Finance: How Apple and Other Corporations Move Profit to Avoid Taxes

A decade ago, that was a question some short-sellers were asking about Parmalat, the Italian food company that had seemed to be coining money.

It turned out that the answer was not a happy one: The cash was not real. The auditors had been fooled. A huge fraud was being perpetrated.

Now it is a question that could be asked about Apple. Its March 30 balance sheet shows $145 billion in cash and marketable securities. But this week it borrowed $17 billion in the largest corporate bond offering ever.

The answer for Apple is a more comforting one for investors, if not for those of us who pay taxes. The cash is real. But Apple has been a pioneer in tactics to avoid paying taxes to Uncle Sam. To distribute the cash to its owners would force it to pay taxes. So it borrows instead to buy back shares and increase its stock dividend.

The borrowings were at incredibly low interest rates, as low as 0.51 percent for three-year notes and topping out at 3.88 percent for 30-year bonds. And those interest payments will be tax-deductible.

Isn’t that nice of the government? Borrow money to avoid paying taxes, and reduce your tax bill even further.

Could this become the incident that brings on public outrage over our inequitable corporate tax system? Some companies actually pay something close to the nominal 35 percent United States corporate income tax rate. Those unfortunate companies tend to be in businesses like retailing. But companies with a lot of intellectual property — notably technology and pharmaceutical companies — get away with paying a fraction of that amount, if they pay any taxes at all.

Anger at such tax avoidance — we’re talking about presumably legal tax strategies, by the way — has been boiling in Europe, particularly in Britain.

It got so bad that late last year Starbucks promised to pay an extra £10 million — about $16 million — in 2013 and 2014 above what it would normally have had to pay in British income taxes. What it would normally have paid is zero, because Starbucks claims its British subsidiary loses money. Of course, that subsidiary pays a lot for coffee sold to it by a profitable Starbucks subsidiary in Switzerland, and pays a large royalty for the right to use the company’s intellectual property to another subsidiary in the Netherlands. Starbucks said it understood that its customers were angry that it paid no taxes in Britain.

Starbucks could get away with paying no taxes in Britain, and Apple can get away with paying little in the United States relative to the profits it makes, thanks to what Edward D. Kleinbard, a law professor at the University of Southern California and a former chief of staff at the Congressional Joint Committee on Taxation, calls “stateless income,” in which multinational companies arrange to direct the bulk of their profits to low-tax or no-tax jurisdictions in which they may actually have only minimal operations.

Transfer pricing is an issue in all multinational companies and can be used to move profits from one country to another, but it is especially hard for countries to monitor prices on intellectual property, like patents and copyrights. There is unlikely to be a real market for that information, so challenging a company’s pricing is difficult.

“It is easy to transfer the intellectual property to tax havens at a low price,” said Martin A. Sullivan, the chief economist of Tax Analysts, the publisher of Tax Notes. “When a foreign subsidiary pays a low price for this property, and collects royalties, it will have big profits.”

The United States, at least theoretically, taxes companies on their global profits. But taxes on overseas income are deferred until the profits are sent back to the United States.

The company makes no secret of the fact it has not paid taxes on a large part of its profits. “We are continuing to generate significant cash offshore and repatriating this cash will result in significant tax consequences under current U.S. tax law,” the company’s chief financial officer, Peter Oppenheimer, said last week.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Samsung Reports 42% Jump in Profit

The world’s largest smartphone maker said its net income reached 7.2 trillion won ($6.5 billion) in the first three months of 2013, compared with 5 trillion won a year earlier.

The figure was a surprising 2 percent increase from the previous quarter. Analysts had expected Samsung to report lower profit than the fourth quarter because demand typically slows.

But sales of Samsung’s flagship smartphone, the Galaxy S III, and the oversize handset device called the Galaxy Note remained strong and shored up profit, Samsung said. The company also spent less on marketing its mobile devices than it had in the previous quarter, when competition heated up with rivals.

Sales rose 17 percent to 52.9 trillion won ($47.5 billion). Operating profit was up 54 percent to 8.8 trillion won ($7.9 billion), in line with its preliminary results released earlier this month.

Samsung successfully capitalized on global demand for smartphones with a wide range of mobile devices that come in a variety of screen sizes and a diverse price range, outpacing rivals including Apple and Nokia.

Analysts expect Samsung to report a stronger profit during the April-June quarter as the Galaxy S4, the latest iteration of the Galaxy S smartphone, goes on sales worldwide, months before Apple introduces a new version of the iPhone. The Galaxy S4 was introduced in South Korea Friday before its release in the United States starts on Saturday.

Samsung said initial orders for the Galaxy S4 were higher than expected, making it difficult to meet demand. Lee Don-joo, head of sales and marketing at Samsung’s mobile division, said sales of the S4 would be higher than its predecessor.

Samsung’s I.T. and mobile communications division, which makes smartphones, tablets, PCs and cameras, reported 6.5 trillion won ($5.8 billion) in operating income for the first quarter, a 56 percent growth from the previous year and its highest since Samsung reorganized the division to merge its PC and handset departments.

The company’s outperformance in the mobile market helped offset sluggish demand in the TV market and a still-weak recovery in display panel sales.

Amazon’s Profit Falls as It Spends Heavily on Distribution Centers

On Thursday, Amazon told investors it’s still not time for a drink.

The Internet retailer reported a 37 percent decrease in profits for the first three months of the year.

That drop was expected, and it was even a bit less than some investors had forecast, which initially helped lift the company’s shares slightly in after-hours trading. The stock eventually ended up falling about 3 percent in after-hours trading.

Amazon said its net income for the first quarter, which ended March 31, fell to $82 million, or 18 cents a share, from $130 million, or 28 cents a share, a year earlier. Revenue jumped 22 percent to $16.07 billion from $13.18 billion.

While the company’s profit was better than analysts had expected, its revenue fell slightly short. Wall Street analysts expected Amazon to report earnings of 9 cents a share and revenue of $16.16 billion, according to an average of their estimates compiled by Thomson Reuters.

Amazon previously told analysts to expect its sales to grow to between $15 billion and $16.6 billion, or somewhere from 15 to 26 percent.

“It’s more of the same from Amazon,” said Colin Sebastian, an analyst at Robert W. Baird & Company.

Mr. Sebastian added that the waves of investments that Amazon was making were unlikely to abate soon. “That’s going to be a continuing trend,” he said.

The seeming indifference of many investors to Amazon’s slim profits shows how much more effective the company has been at articulating its vision of future opportunities to Wall Street than another tech favorite, Apple.

Apple, which made a profit 116 times bigger than that of Amazon last quarter, has been plagued by investor doubts about its growth prospects, driving its stock down 33 percent over the l ast year.

Amazon’s shares are up 38 percent in that period.

Jordan Rohan, an analyst at Stifel Nicolaus, said investors had been reassured by comments from Amazon management that suggested the company was not being hurt as much by weakness in European economies as another e-commerce giant, eBay. “That’s an acknowledgment that the growth outlook for Amazon remains quite robust,” he said.

Amazon is spending heavily on fulfillment centers to speed delivery of physical goods to customers. It is also investing aggressively in data centers to expand its Amazon Web Services business, which provides start-ups and big corporate clients with computers and bandwidth they can rent as needed for their online initiatives.

Then there are the consumer devices that are becoming an increasingly important part of Amazon’s plan to deliver media electronically to customers. The company’s Kindle e-readers are now a full-blown family of tablet computers, which it sells for little or no profit, with the goal of making money over the long term by selling books, movies, music and other services.

Amazon is also developing a television set-top box that it is expected to announce in the fall, a device that could give its video services a more meaningful audience in living rooms. The company recently introduced pilot episodes for 14 original comedy and children’s television shows and is soliciting viewer feedback to determine which ones will be turned into full series.

In a conference call, Tom Szkutak, Amazon’s chief financial officer, repeated an oft-stated Amazon motto about its priorities. “We believe putting customers first is the only way to create lasting value for shareholders,” he said.

Samsung Sets Record-High Profit on Mobile Momentum

SEOUL, South Korea (AP) — Samsung Electronics Co. said Friday its first quarter profit jumped to a record high as smartphone sales remained strong despite the April launch of an updated version of its flagship Galaxy phone.

Sales of consumer electronics usually slow in the first three months of the year after the holiday shopping season, an effect that analysts thought would be compounded by this month's release of the Galaxy S4 smartphone since many delay buying until the newest model is available. Apple Inc. has cited the upcoming release of a new iPhone as a reason for a slowdown in sales of older models.

Samsung began sales of the S4 in its home South Korean market Friday and starts U.S. sales on Saturday. Analysts expect Samsung's profits to reach new highs in the second and third quarters if S4 sales are strong. Lee Don-Joo, head of sales and marketing at Samsung's mobile division, said sales of the S4 will outdo its predecessor, the Galaxy S III.

Samsung said January-March net profit surged 42 percent to 7.2 trillion won ($6.5 billion) from 5 trillion won a year earlier. That increase was despite booking a one-time charge against earnings related to settlement of its intellectual property battle with Apple. Analysts estimated the charge at $600 million.

Sales rose 17 percent to 52.9 trillion won. Operating profit was up 54 percent to 8.8 trillion won, in line with its preliminary results released earlier this month.

Profit was up 2 percent from the previous quarter's result, beating market expectations for a fall. Sales of the S III smartphone and the oversized handset called the Galaxy Note remained strong and shored up profit, Samsung said. It also spent less on marketing its mobile devices than it did in the previous quarter when competition heated up.

Samsung's IT and Mobile Communications division that makes smartphones, tablets, PCs and cameras reported 6.51 trillion won in operating income for the first quarter, up 56 percent from a year earlier and its highest since Samsung reorganized the division to merge PC and handset departments.

Samsung capitalized on global demand for smartphones with a range of mobile devices that come in a variety of screen sizes and prices, outpacing rivals including Apple Inc. and Nokia Corp.

As the S4 goes on sales several months before rival Apple introduces a new version of iPhone, analysts said Samsung's streak of record-setting profit will not stop any time soon.

"You can say it is like a snowball is rolling," said James Song, head of technology at Daewoo Securities. Song forecast Samsung's second quarter operating income to surpass 10 trillion won ($9 billion).

Market research firm IDC estimated that Samsung shipped 70.7 million smartphones during the first quarter, up 61 percent over a year earlier and capturing 33 percent market share. Apple, the second-largest smartphone maker, sold 37.4 million iPhones. Its market share fell to 17 percent from 23 percent a year earlier, IDC said.

Samsung, based in Suwon, South Korea, is also the world's largest maker of memory chips, televisions, mobile handsets and liquid crystal display panels.

The company's strong performance in the mobile market helped offset sluggish demand for TVs and a still weak recovery in display panel sales.

For the first time in recent years, Samsung refrained from increasing its annual capital expenditure on semiconductor and display panel production lines, a sign that it sees slower growth in demand for memory chips and display panels. Its annual capital expenditure for 2013 will be capped at 22.9 trillion won ($20.5 billion).

But Samsung said it will boost its spending on research and development even though it is already one of the largest R&D spenders. Its R&D expense was $2.97 billion during the first three months of this year, nearly three times more than Apple's $1.12 billion, according to financial information provider FactSet.

"Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase R&D spending for strengthening our competitiveness ahead of planned new product launches," said Robert Yi, head of investor relations at Samsung.

Seo Won-seok, an analyst at Korea Investment & Securities, said Samsung's businesses require heavy spending on research and development for future products, especially divisions that make electronic components.

At a Las Vegas trade show in January, Samsung showcased mobile handsets that use curved glasses, a first stage in what would eventually become flexible displays. Adopting more advanced technology is also crucial to lowering memory chip manufacturing costs.

Samsung Reports 42 Percent Jump in Profit

In an earnings report, Samsung said its net profit from January through March had soared 42 percent to 7.2 trillion won, or $6.5 billion, from 5 trillion won a year earlier.

Sales rose 17 percent to 52.9 trillion won. Operating profit was up 54 percent to 8.8 trillion won. Profit from the division that makes smartphones, tablets, personal computers and cameras accounted for nearly three-quarters of the company’s entire profit.

Samsung is the world’s largest maker of computer memory chips, televisions, mobile handsets and LCD panels. It does not provide smartphone sales figures, but it has increasingly relied on smartphones as its main profit generator — a strategy that has brought the company into patent and marketing clashes with Apple.

Samsung began sales of its latest Galaxy S4 smartphone in South Korea on Friday. It planned to introduce it in the United States on Saturday.

Samsung’s rivalry with Apple on the Apple’s home turf intensified as Apple reported its first profit decline in more than a decade. Apple also indicated it planned no major product releases until the autumn.

Samsung has challenged Apple’s once dominant place in the world’s smartphone market by flooding it with a range of models with a variety of screen sizes and prices and updating its versions faster than Apple ever has.

Samsung captured a third of the global smartphone market in the first quarter, according to data released by Strategy Analytics. Shipments of Samsung smartphones surged 56 percent to 69.4 million units in the quarter, it said. Apple iPhone shipments rose 6.6 percent to 37.4 million units.

“Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase” spending on research and development “for strengthening our competitiveness ahead of planned new product launches,” Robert Yi, Samsung’s head of investor relations, said in a statement.

As Profit Slips, Apple Looks to Reward Shareholders

On Tuesday, the technology giant announced that it planned to more than double its program to return cash to shareholders through stock buybacks and a higher dividend, spending $100 billion on the effort through the end of 2015. Its share repurchases alone will increase to $60 billion from the $10 billion it committed previously, the largest such plan in history, the company said.

The move to renew investors’ love affair with Apple’s stock came as the company announced its first profit decline in a decade. Apple said its net income fell 18 percent in its fiscal second quarter, as one of the most successful technology franchises in recent years, the iPhone, showed signs of slowing and other, less profitable products began to make up more of its sales.

The rarity of Apple’s profit decline, which was expected, underscores how one of the most remarkable winning streaks in business has come to an end, at least for now. Investors have battered the company’s stock for months, sending its shares down from their peak of more than $700 last year as warning signs began to emerge about its growth prospects.

In regular trading on Tuesday, Apple shares rose nearly 2 percent to close at $406.13, but they fell slightly in after-hours trading as investors digested the quarterly earnings news and Apple’s plan to return cash to shareholders. One thing that spooked investors is that Apple told them to expect little to no sales growth in this quarter.

“People are concerned they can’t return to growth,” said Walter Piecyk, an analyst at BTIG Research, an institutional brokerage firm.

One of the biggest questions facing Apple is whether it can innovate its way out of its funk by delivering a breakthrough new product, perhaps in a category like television, that rekindles growth and investors’ passion.

Timothy D. Cook, the company’s chief executive, said in a conference call with analysts that the decline in the stock price has been “very frustrating to all of us,” but that Apple remains strong. “Our teams are hard at work on some amazing new hardware, software and services that we can’t wait to introduce this fall and throughout 2014,” Mr. Cook said.

Mr. Cook even dropped a hint about “exciting new product categories” that Apple could enter, suggesting the company is preparing a move into a new market.

For its fiscal second quarter, which ended March 30, the company said that its net income dropped 18 percent to $9.55 billion, or $10.09 a share, from $11.62 billion, or $12.30 a share, during the same period a year earlier.

Revenue rose 11 percent to $43.6 billion from $39.19 billion a year before.

Wall Street analysts expected the company to report earnings of $10.07 a share and revenue of $42.59 billion, according to the average of estimates compiled by Thomson Reuters.

Months ago, Apple sought to brace investors by warning that profit could decline about 20 percent in the quarter. At that time, Apple forecast revenue of $41 billion to $43 billion.

Sales of iPhones, the company’s biggest business, grew only 3 percent to $22.96 billion in the second quarter.

The company has warned that new products like the iPad Mini have lower profit margins than older items like its full-size iPad sibling. It is also selling more of its older model smartphones, like the iPhone 4, which have lower margins. That has stirred up worries that Apple’s efforts to cater to more budget-conscious consumers with low-price products could steadily erode its considerable profits.

Apple is widely thought to be preparing a new low-cost version of the iPhone to compete more aggressively with smartphones based on Google’s Android operating system. A cheaper device could hold special appeal in huge markets like India and China where average incomes are far lower than in the West.

Pushing into inexpensive phones could hurt Apple’s admired profit margins, though. Last year, the company garnered almost 70 percent of the profit in the mobile handset business, according to estimates by Canaccord Genuity.

Apple’s gross profit margins, one of the most closely watched measures of how profitable it is, are already declining, falling to 37.5 percent in the second quarter from 47.4 percent a year ago. This is the fourth consecutive quarter of declining gross margins at Apple, the longest stretch of such declines since 1993, according to Bill Moore, director of corporate development for Bloodhound Investment Research, a provider of online investment management tools.

Apple warned that its gross margins would probably continue to fall in the fiscal third quarter, dropping to between 36 and 37 percent.

“Investors would love some sense of when gross margins will stabilize, and unfortunately Apple didn’t give us that,” said Rob Cihra, an analyst at Evercore Partners.

As Apple’s holdings of cash and cash equivalents have swelled — the figure is now over $140 billion — investors have clamored loudly for the company to step up its efforts to buy back shares or issue a bigger dividend.

The company said on Tuesday that its board had approved a 15 percent increase in its quarterly dividend. It declared a dividend of $3.05 a common share, which will be paid to shareholders on May 16.

Apple said it planned to borrow cash as part of its plan to return cash to shareholders. Even though Apple has far more capital than it needs in its coffers, much of it is held overseas and would be subject to taxes if the company were to bring it back to the United States. Apple can also help increase its earnings per share by lowering its outstanding share count through stock purchases.

“We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases,” Mr. Cook said in a statement.

This article has been revised to reflect the following correction:

Correction: April 25, 2013

Because of an editing error, an article on Wednesday about Apple’s second-quarter earnings misstated the company’s projections for its gross profit margins in the third quarter. It expects its margins to drop to between 36 and 37 percent, not to fall by that percentage amount.

Despite Sales Growth, Ericsson Profit Plunges

But shares in Ericsson, based in Stockholm, rose 3.4 percent on Wednesday to close at 79.60 kronor. Investors focused on underlying operating profits and comments by the chief executive, Hans Vestberg, who said he expected demand for new networks, its most lucrative business, to accelerate this year.

In the first three months of the year, 30 percent of Ericsson’s network equipment sales were made to the four big American network operators, a record for the Swedish company. Those companies are Verizon Wireless, AT&T Mobility, Sprint and T-Mobile U.S.A., which are expanding or planning to expand their mobile broadband networks.

“The networks division is going in the right direction,” said Hakan Wranne, an analyst with Swedbank in Stockholm. “This is being driven of course very much by the U.S market, which is basically the four big customers. That is also a risk.”

Net profit fell to 1.2 billion kronor, or $180.7 million, in the three months through March from 8.8 billion kronor a year earlier, when profit was inflated by a one-time gain of 7.7 billion kronor from the sale of a 50 percent stake in SonyEricsson to Sony.

Sales in the first quarter rose 2 percent, to 52 billion kronor, led by a demand in North America and Southeast Asia, where sales rose 23 percent and 22 percent, respectively. That offset a 34 percent sales decline in China, Japan and South Korea, where the weakening Swedish currency and slowing network investments weighed on results.

Excluding these and other one-time effects, Ericsson’s operating income rose 50 percent in the period, to 2.1 billion kronor from 1.4 billion kronor a year earlier.

Ericsson’s biggest rival, Huawei of China, has been effectively blocked from selling equipment to American operators because of national security concerns by U.S. lawmakers, fears that the Chinese company says are unfounded.

The intense competition between Huawei and Ericsson has turned to Europe, pushing down equipment prices and profits for both companies.

In the European market, which Ericsson defines to include Russia and some of the former Soviet republics, quarterly sales rose 6.3 percent, to 11.9 billion kronor.

“What we have been seeing for several years now, particularly in Europe with the modernization and huge swap-outs of networks, is that those contracts have been taken by Ericsson and Huawei at very low margins,” said Mr. Wranne, the analyst.

Mr. Vestberg, the Ericsson chief executive, said during an interview that he expected operators in Europe, North America and parts of Asia to accelerate their equipment purchases in the second half of this year, as carriers upgraded networks to accommodate the demands of their new Long Term Evolution technology, which delivers the fastest mobile broadband speeds on the market.

Equipment purchases intended to raise the capacity of networks, like replacing routers and updating network software to improve the efficiency of networks, are typically among the most lucrative types of sales for Ericsson.

“You have a new technology push, a rollout of a lot of coverage, you start upgrading and then you begin putting capacity in the networks,” Mr. Vestberg said.

“In the way we are approaching this mobile broadband technology right now, it will have a major impact on our society. And it is definitely being driven by data and networks.”

Weighing on Ericsson’s results was a one-time charge in the quarter of 1.4 billion kronor to eliminate jobs for 919 employees in Sweden, or about 5 percent of its domestic work force of roughly 17,200, and the costs of reducing staffing at its global network management business. Its global work force was about 110,000 at the end of last year.

In Latin America, Ericsson’s sales fell 9 percent, to 4.4 billion kronor, in the quarter as operators postponed building new networks amid delays in auctions of radio-frequency spectrum.

G.E. Posts 16% Rise in Quarterly Profit

G.E., the nation’s largest industrial corporation, reported net income of $3.53 billion, or 34 cents a share, a 16 percent increase from $3.03 billion, or 29 cents a share, in the period a year earlier.

On an operating basis, income was $4.13 billion, or 39 cents a share. Excluding gains from the sale of its remaining stake in the media company NBCUniversal to Comcast, G.E. posted a 13 percent increase in operating income, to $3.6 billion, or 35 cents a share. That figure matched the average estimate of securities analysts, as compiled by Thomson Reuters.

Revenue in the first quarter was $35 billion, flat compared with figures in the period a year earlier. Over all, G.E.’s revenue came in ahead of Wall Street’s forecast of $34.5 billion. But that total included proceeds from the NBCUniversal sale and slightly higher revenue this year from G.E.’s big finance division, GE Capital.

Revenue from the industrial business, whose products range from jet engines to medical imaging equipment, declined 6 percent, to $22.67 billion.

The drop in industrial sales disappointed investors. Shares of G.E. fell 4 percent, or 92 cents a share, to $21.75.

The shortfall in industrial revenue was attributed to the company’s power and water unit, mainly from lower sales of generators for electrical power plants and wind turbines. As investment subsidies are phased out, wind turbine sales have fallen.

With sluggish growth in the United States and Europe in worse shape, the demand for electrical power is down, meaning fewer power generators sold, upgraded and serviced.

The power and water unit’s revenue fell 26 percent from a year ago, to $4.8 billion, or $1.7 billion less than in the year-ago quarter. Without the power and water unit, G.E.’s industrial business would have grown slightly.

“This is a power and water story,” Keith S. Sherin, G.E.’s chief financial officer, said in a conference call with analysts.

Still, G.E. managed to pull out a steady financial performance, helped by higher profits in its aviation and transportation units and by GE Capital.

Weak industrial demand, analysts say, will be a challenge in the first half of this year for the big companies in the sector, including Siemens, Honeywell and United Technologies. Yet because of the falloff in its big power-generation business, G.E. is being hit particularly hard.

“G.E.’s industrial business is slowing even more than expected,” said Steven Winoker, an analyst for Sanford C. Bernstein & Company.

In a morning conference call, Jeffrey R. Immelt, G.E.’s chief executive, called the quarterly performance “mixed.” The first half of 2013, Mr. Immelt said, was expected to be the most challenging, with demand likely to pick up in the second half.

Industrial orders were strong in some businesses, with orders for oil and gas equipment up 24 percent and aviation orders — mainly jet engines — up 47 percent.

The backlog of industrial orders rose to $216 billion, the highest level in the company’s history. The rising industrial orders signal stronger sales in the future, Mr. Immelt said, helping to “position us well for the second half.”

But Europe, where industrial revenue fell 17 percent, may continue to be a drag on the industrial business. “Europe was tougher than we expected,” Mr. Immelt said, adding later, “We’re not counting on things getting better.”

To maintain profits in spite of the weakness in industrial sales, G.E. plans to cut costs by $1 billion this year. And the company, Mr. Immelt said, remained committed to spending $18 billion during the year on dividend payments and to buy back its own shares.

Wireless Lifts Profit at Verizon

For Verizon, the top American phone carrier, prolonged success is good news in the telecommunications industry, a business that is adding customers more slowly now because most people who want a cellphone already have one.

Investors in the company are probably especially happy that even though Verizon has gradually raised prices of phone plans while eliminating unlimited data over the last few years, customers have been willing to spend more on their monthly bills.

“It’s just amazing that the average revenue per account keeps growing,” said Tero Kuittinen, a telecom analyst at Alekstra, a mobile diagnostics firm. He said it was impressive that Verizon continued to squeeze more money from each customer, because its newest subscribers were “low-quality” customers — budget-conscious people who held out for many years on buying smartphones.

In its earnings call, Verizon said net income in the first quarter rose 15.8 percent to $1.95 billion, or 68 cents a share, from the same quarter a year earlier, while revenue climbed 4.2 percent to $29.4 billion.

The company, based in New York, said its wireless business earned significant revenue because of strong sales of smartphones, as well as the popularity of its shared-data subscription plans, which are more expensive for individuals but can be cost-effective for families with multiple devices.

Total revenue for wireless was $19.5 billion, up 6.8 percent from last year. The company activated 7.2 million smartphones over the quarter, and its shared-data plans helped increase revenue per account to $150.27 a month, up 6.9 percent from last year. Four million of the smartphones sold were Apple’s iPhones.

Verizon also continues to expand its customer base, while its competitors have experienced a slowdown in subscriber additions. It added 677,000 contract subscribers, the most valuable type of customer, up 35 percent from last year.

“Through solid execution of our strategy, the wireless results speak for themselves,” Francis J. Shammo, chief financial officer of Verizon, said on the earnings call.