After drawing some observations and rules of thumb from the first batch of tech leaders to report earnings this month, what can we learn from those who have posted numbers since then? Let's start with Verizon ( VZ), the second largest phone carrier in the U.S., which posted earnings in line with expectations this week and saw a 1.7% decline in wireline revenue, yet its stock rose 10% on Monday. Why? Because Verizon is offsetting the loss of residential phone lines with new wireless accounts, just as it's balancing the loss of DSL accounts with super-fast fiber-optic lines. Verizon is managing to switch horses in midstream. It's transitioning from older and soon to be outmoded businesses to ones with more potential in the midst of an increasingly tough economy. Considering that it's also facing the potential loss of customers to AT&T ( T) because of the iPhone 3G, the company is proving it can navigate through tricky situations. While no corner of the tech sector is likely to be spared from the effects of a recession, there are some pockets that may hold up relatively well because of areas where innovation and creativity are likely to draw what few dollars consumers and companies are willing to part with. That's a big contrast to companies relying on advertising. ValueClick ( VCLK) warned Wednesday that its fourth-quarter revenue will be $142.5 million and its net profit at 15 cents or 16 cents a share, vs. the estimate of $167.7 million and 19 cents a share, respectively.
The downturn may drive even more advertisers over to targeted online ads, an area where Google ( GOOG) has the reputation for being the best brand. Wireless devices, however, may be one of the exceptions, which brings us to Apple ( AAPL). A week ago, I ventured into an AT&T store and found its cramped quarters packed with a couple of dozen customers lined up to check out the iPhone. I had to remind myself that we weren't at the peak of a flush economy, but instead have suffered several weeks of gut-churning market plunges. So it came as no surprise to see that Apple was sticking to its old tricks and beating analyst estimates. Apple's $7.9 billion of revenue in its fiscal fourth quarter came in $15 million short of the consensus, but its $1.26 a share profit blew away the $1.01 a share estimate. Of course, Google's Android and Research In Motion's ( RIMM) BlackBerry will surely take strides to catch up with the features making the iPhone popular, but that's only likely to drive Apple to be even more creative. As long as Apple maintains its innovative edge, they may remain a bright spot in tech, even during the downturn. Internet services and content is shifting to portable devices in ways that no one can see yet, but it's a big transition that will play out over a few years. Another smart thing Apple did was put Steve Jobs on the conference call. The rumors and talk of Jobs being ill or somehow close to death's door have been silly at best, but any reassurance these days is welcome, and hearing Jobs talk about the overall climate may have helped tech overall. Apple is one of the few tech companies whose overall health can have a big impact on the sector at large.
Another area where a major transition is under way, and where innovation may offer some relief from hard times, is cloud computing. The creative force here is Amazon.com ( AMZN), whose Web services like S3 storage remain a small part of revenue but are nevertheless laying the groundwork for something big later on. Amazon's third-quarter numbers were mixed: Revenue of $4.26 billion was just shy of the Street's number and profit of 27 cents a share beat estimates by 2 cents but included a benefit from currency re-measurements. But it was the forecast that threw investors for a loop: Revenue this quarter will come in between, oh, $6 billion and $7 billion. Why not just say it will be a 10-figure number? Amazon's stock fell 13% on that forecast, but made up most of those losses the same day. And it closed Wednesday 14% above its pre-earnings level, so investors are more than forgiving. Investors may have realized that Amazon's vagueness is no worse than Google's practice of not giving earnings guidance. In the company's defense, the fourth quarter is Amazon's biggest by far, and things could swing either way: Customers could do more shopping on Amazon because of its discounts and free shipping (for the patient), or the recession won't even spare Amazon. Amazon's user-friendly, discount-driven model was forged in the last recession. That approach may appeal to consumers who are pinching pennies but unwilling to give up on gift-giving altogether. So as the October earnings season grows quieter, we're seeing a few trends that could continue to play out through a sluggish economy. Consumers and companies haven't cut off tech spending entirely, but they are showing a preference for more forward-thinking technologies, whether it's Google's targeted ads, Apple's superior gadgets or Amazon's bare-bones pricing. Interestingly, these companies aren't showing any shifts in strategy, but merely fine tuning approaches they have been believing in for several years. That may be the real lesson here: Smarter companies will hold up better in lean times, but there's just a lot less money for the me-toos and also-rans.