Wall Street Beat: Tech Earnings Stay Strong
A tsunami of fourth-quarter earnings reports this week from tech bellwethers like Google, eBay, IBM and Seagate is reinforcing widespread belief that the IT sector is set for a rebound this year.
As usual, all eyes were on Google, which Thursday reported profit of US$1.97 billion, up dramatically from $382 million at the same time last year, when earnings were brought down in part by one-time charges from a decline in value of investments. Fourth-quarter revenue at the search giant rose by 17 percent to $6.7 billion.
Though the numbers looked good, investors were apparently hoping for more from the tech superstar, and its share price dropped in after-hours trading. Google shares have also been hit lately by concerns about its threat to pull out of China and doubts about its ability to enter the hardware-sales business with its Nexus One phone.
But Google's results, along with solid financial reports from other vendors, are backing up expectations for the year.
IT spending globally will rise by 4.6 percent from last year to hit $3.4 trillion in 2010, according to a forecast issued Thursday by Gartner, the latest market researcher to say that 2010 will be a year of growth for technology. The prediction does not come close to the double-digit growth rates experienced during the dot-com bubble, but it is a vast improvement over 2009, when worldwide IT spending dropped by 4.6 percent, Gartner said.
All major segments of IT, including hardware, software, services and telecom, are forecast to grow this year, Gartner said.
"Last quarter, we did not expect to see IT spending levels recover to 2008 levels until 2011; however, now, with the upward revision to the current dollar forecast, we are projecting that global IT spending this year will approach the level seen in 2008," said Richard Gordon, research vice president at Gartner, in the report.
One caveat: Much of the rise, in dollar terms, will be due to an expected decrease in the value of the dollar, which will inflate the value of IT sales made outside the U.S. in foreign currency.
Nevertheless, the stream of companies announcing improved sales and profit has fed confidence that technology is a sector that will continue to lead the world out of recession.
IBM, an important bellwether because it is a worldwide company with a large portfolio of software, services and hardware, on Tuesday reported fourth-quarter revenue of $27.2 billion. Though that was a modest 1 percent rise from one year earlier, it was the first uptick in revenue since the third quarter of 2008, which ended with the implosion of Lehman Brothers, followed by the virtual collapse of Wall Street and the U.S. credit markets. IBM's profit for the quarter rose 9 percent year over year to $4.8 billion.
Other earnings this week included:
-- EBay, which reported on Wednesday that fourth-quarter revenue was $2.4 billion, up 16 percent from the same period last year. EBay's net income rose to $1.35 billion from $367.2 million. The figures were boosted by its sale of Skype. However, profit still rose 12 percent excluding the sale.
-- Storage vendor Seagate also on Wednesday reported second-fiscal-quarter net income of $533 million, compared to a loss of $2.8 billion a year earlier. Revenue was $3.03 billion, up from $2.27 million in the year-ago quarter.
-- Advanced Micro Devices, which Thursday announced its first quarterly profit in three years. Revenue was $1.6 billion, a 42 percent improvement over the year-earlier period, while profit was $1.2 billion, compared to a loss of $1.4 billion a year earlier. However, in one of the few sour notes for tech financials this week, it said that without a $1.25 billion payment from a legal settlement with chip rival Intel, it would have lost money.