Outlook good for IT earnings
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(InfoWorld) - With shares of major technology companies trading as high as they have ever done in the post dot-com era, IT investors this week are scrutinizing quarterly results from the world's biggest vendors to judge how the market will hold up for the rest of the year. Market analysis firms started off the year predicting an overall global annual IT spending increase of about 6.5 percent, so no one was expecting technology vendors to experience growth at the heady rates of the late 1990s. But even as competition squeezes profit margins, results overall point to a healthy 2007. In the hard-fought Internet services arena, product development and customer acquisition costs remain high, but Google continues to show skyrocketing growth. Thursday, it reported thatÂ second quarter net income rose 28 percentÂ from a year earlier to hit $925.1 million as revenue, minus traffic acquisition costs, surged by 63 percent to reach $2.72 billion, above the average forecast of $2.68 billion by analysts polled by Thomson Financial. In the chip sector, Intel reported Tuesday that even though gross margins on product sales shrank,Â profit for the second quarter increasedÂ 45 percent from last year to $1.3 billion. Company officials said that revenue for the third quarter would be $9.0 billion to $9.6 billion, beating its previous forecast. IBM also raised its earnings forecast for the rest of the year Wednesday and reported thatÂ second quarter results were its best in six years. Net profit was $2.3 billion, up 11.8 percent increase from a year earlier, on revenue of $23.8 billion, up 9 percent. In software, Microsoft was upbeat about its core business Thursday. Though it faces a mature market for its cash-cow products, it said sales of operating systems, server software and tools fueled a 7.3 percent rise in net income asÂ revenue rose 13 percent to $13.38 billion. Both profit and sales beat Wall Street estimates. However, companies like Motorola reminded investors that in an era of moderate growth, not everyone can win big. Two days after announcing it would restructure operations, the handset maker Thursday reported that disappointing sales of mobile devices led to aÂ second-quarter loss of $28 million, down from net income of $1.38 million a year earlier. Product design has become a crucial issue as the North American and European markets mature. Yahoo, meanwhile, suffered in the Internet services market,Â reporting Tuesday thatÂ net income for the quarter was $161 million, down from $164 million one year earlier. Yahoo also lowered its earnings guidance for the rest of the year. Despite disappointing results in some of the harder-fought areas of IT, overall earnings news and guidance for the rest of the year, coupled with the latest reports on customer spending, suggest that 2007 could end up being one of the brightest years in the wake of the dot-com bust. The tech-heavy Nasdaq stock market index hit six-and-half year highs this week and last, and customer spending seems to be exceeding forecasts. Results of the quarterly CIO Magazine Tech Poll published earlier this month, for example, indicate improved IT spending forecasts with respondents predicting increases of 7.2 percent over the next 12 months, versus estimates earlier this year of an average 5.1 percent increase.
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Plus: Toshiba earnings dip, chip outlook dims...Verizon boosted by wireless, fiber...Nintendo outlook positive.
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Moneysupermarket.com dispelled some of the gloom surrounding the financial services sector on Wednesday after saying it expected earnings to rise by 60 per cent this year.
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Though the macroeconomic picture remains cloudy, major IT vendors, such as Apple, Microsoft, and EMC, for the most part reported solid third-quarter earnings this week, giving technology investors hope for the rest of the year.
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Microsoft beat Wall Street expectations for both revenue and EPS (earnings per share) for its fiscal 2008 second quarter, attributing its strong quarter to sales of core client products, such as Windows Vista and Office 2007, as well as Exchange and SharePoint server software.For the quarter ended Dec. 31, Microsoft reported revenue of $16.37 billion, an increase of 30 percent year over year and a number that solidly beat the $15.95 billion in revenue that Thomson Financial analysts had estimated. Last year for the same period, Microsoft reported $12.54 billion in revenue.Diluted earnings per share were $0.50, an increase of 92 percent over the $0.27 in EPS reported last year, and $0.04 higher than Thomson Financial estimates of $0.46. Operating income for the quarter was $6.48 billion, an increase of 92 percent from the $3.47 billion reported for the same period last year.Microsoft&#39;s year-over-year percentage growth is higher than normal due to a deferral of $1.64 billion in revenue and operating income, as well as $0.11 of diluted earnings per share from the second to the third quarter of fiscal 2007. This deferred revenue contributed to the higher-than-average second-quarter percentage growth. Without these deferrals, second-quarter growth rates for revenue, operating income and earnings per share would be 15 percent, 27 percent and 32 percent, respectively, for the quarter reported Thursday.Ahead of Microsoft&#39;s announcement, analysts had expected the company to report a strong quarter even among economic uncertainty and fears that the U.S. economy is entering a recession.Microsoft&#39;s client business, on sales of Windows Vista, was especially strong in the quarter, with $4.34 billion in revenue compared to $2.59 billion in revenue a year ago. According to Microsoft, its client business has grown 20 percent on average since Windows Vista was made available nearly a year ago, and the company believes Vista began hitting its stride for adoption among customers and partners in the second quarter. According to Microsoft, it has sold more than 100 million licenses for Vista.Looking ahead to the next quarter, which ends March 31, Microsoft said Thursday that it expects revenue in the range of $14.3 billion to $14.6 billion; operating income in the range of $5.6 billion to $5.7 billion; and diluted earnings per share in the range of $0.43 to $0.45.For the full fiscal year ending June 30, Microsoft expects revenue in the range of $59.9 billion to $60.5 billion; operating income in the range of $24.2 billion to $24.4 billion; and diluted EPS in the range of $1.85 to $1.88.
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Stocks could rise next week if the  first wave of quarterly earnings inject optimism about results  for the period and on economic growth that has surprised on the  upside.
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The retailer reports strong earnings and lifts its outlook.
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Plus: Alltel profit, revenue rise...SanDisk earnings top estimates...SAP revenues solid, outlook moderate...Phone sales boost Nokia profits past forecasts.
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U.S. stocks may rally next week if the  early stages of the earnings season yield positive results and  U.S. data shows price pressures are moderating enough to keep  interest rates steady.
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Plus:  Microsoft tops its expectations...Google doubles profit year-over-year...SAP earnings beat estimates...EarthLink trims outlook...AT&#38;T posts $7.1 billion loss...Lucent sees first profitable year since 2000...EMC issues sunny report.
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Boston Acoustics' quarterly results sound good, but is there steady growth?
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Heading into the heart of earnings  season this week the expected results look robust, but a  slowing of future profit growth and the impact of surging oil  prices on the economy could conspire to hold down stocks.
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(InfoWorld) - Heading toward the end of a better-than-expected year for IT, the good news this week was that there were no big surprises when Hewlett-Packard, Cisco Systems, and Advanced Micro Devices laid out strategies at investor and analyst conferences. While IT product prices, especially in hardware sectors like chips and some types of networking equipment, have been under pressure, tech vendor sales have been strong generally. The Nasdaq Composite Index, home to a broad range of publicly traded IT companies, crossed 2400 in November and has remained at that level, after opening the year at 2244. Tuesday's U.S. Federal Reserve decision to leave rates unchanged, and a much better-than-expected report on retail sales Wednesday stoked markets overall. On Thursday the Dow Jones Industrial Average hit a new intraday high of 12427.17, and the Nasdaq surged by 21.44 points to close at 2453.85. AMD gave assurancesÂ Thursday at an analyst meeting in New York that its $5.4 billion merger with graphics chip maker ATI will result in greater-than-expected cost savings in 2007, and $80 million to $160 million in incremental revenue. This caused AMD shares to jump by $2.54 to close at $22.71. The company also stressed that it expects a revenue boost from Microsoft's Vista OS release. The company in OctoberÂ announced fourth quarter resultsÂ that beat analyst estimates, but there were concerns about profit margins. The challenge for AMD is to keep a lid on costs and continue to successfully challenge Intel, especially with quad-core products in 2007. At HP's meeting in New York Tuesday, Chief Financial Officer Robert Wayman said thatÂ the company is forecastingÂ fiscal 2008 revenue between $101 billion and $103 billion. The high side of that is slightly higher than the consensus analyst forecast of $102 billion, according to Thomson First Call. It was reassuring but not exciting, at the tail end of a great year from HP (despite theÂ board spying scandalÂ that cost Chairman Patricia Dunn her job in September). The day of the analyst meeting, HP shares (HPQ) closed at $39.83, down by $0.18. But HP's announcement with MicrosoftÂ on WednesdayÂ helped spark investor interest. The deal calls for the companies to work on a range of business software products to the enterprise market, including business intelligence software. HP closed Thursday at $39.91, up $0.19 for the day. At Cisco's C-Scape conference for analysts this week in San Jose, California the company stressed themes that it had hit earlier this year. The company says it will sustain double-digit growth through the rest of the decade by incorporating data, voice, video and mobile capabilities -- its "quadruple play" -- across product lines. This week, the companyÂ focused on the consumer sideÂ of the equation, spotlighting itsÂ merger with set-top box maker Scientific-Atlanta, and also its Linksys consumer gear. Cisco plans to maintain its stronghold in the enterprise while continuing to grow in the consumer market. By the second day of the conference, Cisco shares (CSCO) were up $0.14 from its close Monday. In the current upbeat climate, reassurances from IT heavyweights about the next few quarters could be enough to boost IT investor confidence into the new year.
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Hewlett-Packard reported solid financial results for its fiscal first quarter, driven by growth in PCs and enterprise hardware. The results prompted HP to raise its forecast for the year ahead.Revenue for the quarter, which ended Jan. 31, was $28.5 billion, up 13 percent from a year earlier, HP announced Tuesday. Pro forma net income was $2.3 billion, or $0.86 per share, up from $1.8 billion, or $0.65 per share, a year earlier.The figures beat the expectations of financial analysts, who had forecast revenue of $27.6 billion and pro forma earnings per share of $0.81, according to Thomson First Call. The pro forma figure excludes one-time items that slightly inflated the results. Using generally accepted accounting principles, HP&#39;s profit was $2.1 billion, or $0.80 per share.HP&#39;s Personal Systems Group, which produces its laptop and desktop PCs, grew its revenue 24 percent from the same period a year earlier, to $10.8 billion, with unit shipments up 27 percent. Notebook sales climbed fastest, up 37 percent, while desktop sales climbed 15 percent.The division had already been doing well. HP extended its lead over Dell in PC sales last year, according to figures from Gartner. HP ended the year with 18.2 percent of the market, compared with 14.3 percent for Dell. The PC market overall grew 13.4 percent.HP may find it hard to sustain that growth rate, in part because it has to make comparisons with increasingly successful quarters in the year before, CEO Mark Hurd said on a conference call. Still, Hurd said, &quot;when you look at 24 percent growth, I think that&#39;s pretty darned strong.&quot;HP&#39;s imaging and printing group performed slightly less well, with revenue climbing 4 percent to $7.3 billion. Printer unit sales declined by 1 percent from a year earlier, thanks to weakness in the consumer market. Revenue from supplies, which includes HP&#39;s profitable ink business, climbed 6 percent, however.Revenue from the servers and storage group climbed 9 percent to $4.8 billion. Sales of blades and industry-standard servers were strong, while HP&#39;s PA-RISC and Alpha chip businesses continued to shrink. Services revenue climbed 11 percent year-over-year to $4.4 billion, while software sales climbed 11 percent to $666 million, HP said.Hurd said he was pleased with the results overall. He attributed them to successful cost-cutting efforts, the addition of 2,000 new HP sales staff in the past year, and a diverse product portfolio.HP generates an increasing amount of its business overseas, he said. Its biggest market continued to be Europe, the Middle East and Africa, where revenue grew 15 percent to $12.3 billion. Asia-Pacific revenue climbed 22 percent to $4.9 billion. Growth in the Americas was a sluggish 8 percent, generating $11.2 billion.&quot;We generated 69 percent of our revenue outside the U.S., with emerging markets driving significant growth,&quot; Hurd said.The company now expects second-quarter revenue of $27.7 billion to $27.9 billion, and pro forma earnings per share of $0.83 or $0.84. That&#39;s above what analysts polled by Thomson had been estimating: pro forma profit of $0.82 and revenue of $27.4 billion.
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Plus: SAP revenues solid, outlook moderate...Phone sales boost Nokia profits past forecasts...eBay posts large quarterly loss on Skype write-down...IBM services buoy earnings...Yahoo net profit falls.
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Makes solid gains in 'seasonally weaker quarter'
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Heading into the heart of earnings  season next week the expected results look robust, but a  slowing of future profit growth and the impact of surging oil  prices on the economy could conspire to hold down stocks.