Wall Street Beat: Google, VMware, Business Objects Shine
IT investor confidence in technology is gaining strength. This week, vendors as diverse as Google Inc., Business Objects SA and VMware Inc. led the tech-heavy Nasdaq Composite Index to break the 2800 mark for the first time since January 2001, the second week in a row the market has hit a six-year milestone.
Tuesday's Nasdaq close of 2803.91 was noteworthy, since it fell on the five-year anniversary of the current U.S. bull market. The bear market earlier this decade, marked by the dot-com bust, ended in October 2002. Since then, markets have had short periods of decline but generally have trended upward.
Eighteen straight quarters of double-digit growth in corporate earnings have sustained the bull market, and IT profits have been at the core of this phenomenon. Strong earnings have helped lift tech-company share prices 142 percent since 2002, according to data from Standard & Poor's.
Concerns about the U.S. economy -- stemming from a soft housing market and a rising tide of defaults on mortgages -- caused shares to tumble in July and August. The big question is whether the third quarter declines were the end of the bull market, and whether a general market decline would affect IT vendors. The answer to both questions over the past few weeks appears to be no.
Recently, IT companies that appear to be taking advantage of user interest in hot areas such as mobile technology, virtualization, business intelligence, security and cutting-edge Web services have grabbed investor attention.
Google shares broke US$600 for the first time on Tuesday. The company appears set to branch out from search advertising. It is putting ads on YouTube videos and seems prepared to offer an array of software for mobile devices.
On Tuesday, Google announced it is buying Finnish startup Jaiku, which has developed a social-networking mobile phone application. Similar to Twitter, the application lets users send short messages about what they're doing.
VMware is still riding high on interest in virtualization. On Tuesday, the company broke the $100 mark for the first time since going public three months ago. Virtualization, which allows servers to work more efficiently, has been a buzzword for several years. But as businesses struggle to curb energy and hardware costs, interest in the technology remains high.
Business intelligence is seen as a way to sort through all the data in those servers, as the Internet fuels an exponential rise in the amount of information companies are able to collect. Following Oracle Corp.'s acquisition of BI and financial applications vendor Hyperion, completed in April, SAP AG on Sunday announced it would buy Business Objects for $6.8 million [m].
"In one transaction, SAP gets the best-of-breed set of BI tools with full BI stack capabilities," Forrester analyst Boris Evelson wrote in a research note.
Business Objects jumped $7.56, to close Monday at $57.83, though SAP shares fell $2.87, to close at $56.36, probably because the acquisition will dilute earnings.
After Tuesday's milestone, the Nasdaq rose again Wednesday, then retreated Thursday. Analysts widely attributed the retreat to efforts to reap profits on the recent share gains. The index is still well above its third-quarter low point of 2451.
Analysts are widely anticipating strong third-quarter results from many IT bellwethers.
Google, Yahoo, Intel Corp. and Advanced Micro Devices Inc. will report earnings next week. Some analysts expect Google profits to be up 50 percent from a year ago. And even though CitiGroup lowered its fourth -quarter forecast for the semiconductor sector, it released a research note this week saying it expects some upside surprises from Intel, and possibly some other chip makers, as they report results.