Wall Street Beat: Mixed Signals Amid Hope for IT Recovery
Though some industry watchers are looking for a recovery in the second half of the year, IT vendors this week gave out mixed signals about prospects for sales, as Research In Motion (RIM) issued a tepid quarterly forecast, Progress Software and consumer electronics retailer Best Buy reported weak quarters, and MySpace announced staff cuts.
The macroeconomy also is giving out contradictory signs. The U.S. Department of Labor on Thursday reported that for the first week of June the overall number of people drawing unemployment benefits fell for the first time since early January. However, new unemployment claims were up slightly.
Despite the continuing uncertainty about the economy, some industry insiders still expect to see stronger signs of a recovery in the second half of the year.
Though many enterprises budgeted for 2 percent to 5 percent IT spending increases in 2009, these forecast increases have not translated into spending so far this year, according to Bob Dvorak, senior vice president and general manager at Forsythe Technology, a consulting firm. But many large enterprises have spent the first half of 2009 working to improve the overall IT cost structure, completing projects including storage and desktop virtualization, cloud computing and the introduction of managed services. As the projects take effect, spending should rise in the second half of 2009, according to Dvorak.
IT spending increases are not assured, however. Global IT budgets, according to a recent Gartner report, suffered a decline of 4.7 percent in the first quarter of 2009 compared with 2008 budgeted levels. But the worse news is that 46 percent of CIOs responding to the Gartner survey reported changes to their budgets since they were finalized for 2009 -- and 90 percent of those changes involved IT budget reductions of an average of 7.2 percent.
Vendor financial results have been mixed. BlackBerry maker RIM Thursday posted earnings, excluding one-time items, of US$564.4 million or $0.98 a share, up from $0.84 per share a year earlier. The results also beat the forecast of analysts, who were looking for earnings of $0.94 a share, according to Thomson Reuters. However, the company offered a somewhat weak revenue forecast. RIM said sales in the second quarter will be about $3.45 billion to $3.70 billion, with a midpoint of $3.57 billion. Analysts were looking for a midpoint of $3.6 billion. That's not much of a difference. But given that smartphones provide one of the few product categories that are doing well this year, the forecast is a bit disappointing.
Business-software maker Progress Software reported Thursday that second-quarter profit dropped 52 percent. For the third quarter, it forecast earnings per share of $0.38 to $0.41 a share on revenue of $120 million to $123 million. Analysts surveyed by Thomson Reuters were hoping for EPS of $0.42 on sales of $122 million.
Electronics retailer Best Buy on Tuesday posted quarterly income of $153 million, or $0.36 per share, down from $179 million, or $0.43 a share a year earlier. Sales at stores open at least 14 months and Internet sales fell 6.2 percent.
The economy is also affecting Web 2.0 services such as MySpace, which Tuesday called its staff "bloated" and announced it would cut 30 percent of its workforce. MySpace, owned by News Corp., has been overtaken in the social-networking market by Facebook, which now lays claim to being the most popular social-networking service in the U.S., after already holding that position globally.
While some analysts are forecasting the beginning of a recovery in the second half of the year, IT vendors themselves are still treading cautiously. IT investors will be getting more data on how the year is going next month when most vendors report second quarter earnings. It will no doubt take more time than that, however, to confidently make predictions about the end of the year.