Wall Street Beat: Tech Vendors Issue Upbeat Sales Reports
Since the beginning of the year, doubts about economic recovery have sent markets on a roller-coaster ride, but the IT sector keeps plugging along, showing signs that it is becoming increasingly dynamic.
Hewlett-Packard, the biggest tech company in the world, on Wednesday joined other bellwether vendors such as Intel, IBM, Google and Microsoft that have recently announced strong quarterly earnings.
HP reported a 28 percent jump in profit compared to last year, to US$2.3 billion, for the quarter ending Jan. 31. It was the first major vendor to report results through the full month of January.
For bottom-line watchers who are worrying about the pace of economic recovery, HP's 8 percent revenue gain, to $31.2 billion, should have been the most important figure in the report. While profit can be boosted by cutting costs, companies increase revenue by selling more products and services, ultimately the real path to recovery.
HP's printer, industry-standard server and PC businesses all reported sales growth, though services revenue declined slightly.
Dell on Thursday reported a drop in profit during the fourth quarter of the company's 2010 fiscal year, which ended Jan. 29, but said strong sales of laptops and servers helped revenue increase from the year-earlier period. Revenue improved in all businesses, rising to $14.9 billion, compared to $13.4 billion a year earlier.
Investors will want to see the company's costs contained, because profit declined 5 percent to $334 million. The increase in sales is nevertheless another sign of recovery for the hardware market.
Strong PC sales also mean good news for the chip sector. Signs that the chip arena is coming back to life came from different vendors this week. Applied Materials, which makes equipment used to manufacture semiconductors, said profit was $83 million compared with a year-earlier loss of $133 million for the quarter ending Jan. 31. Sales jumped to $1.85 billion from $1.33 billion.
The company also said its revenue would rise more than 50 percent for the fiscal year ending in October, up from its prior growth forecast of greater than 30 percent.
In another good sign for chips and hardware, graphics processor maker Nvidia on Wednesday reported a fourth-quarter profit of $131.1 million, compared to a year-earlier loss. Revenue jumped more than 100 percent to $982.5 million.
The positive news this week went beyond the PC and chip sectors. Storage-equipment maker NetApp on Wednesday reported quarterly net income of $108 million, compared to a loss in the same period last year of $82 million. The company had revenue of $1.01 billion, up from $746 million in the year-earlier quarter.
Meanwhile, upbeat predictions for the mobile market came out of Mobile World Congress in Barcelona this week. The ITU issued a statement predicting strong global mobile cellular growth around the world. Mobile cellular subscriptions globally will rise from about 4.6 billion at the end of 2009 to 5 billion this year, the ITU forecast. Advanced services and handsets in developed countries and increasing use of mobile health services and mobile banking in the developing world will spur growth in the market, the ITU said.
"Even during an economic crisis, we have seen no drop in the demand for communications services," said ITU Secretary-General Hamadoun Tour
Despite the generally upbeat financial reports from IT companies since the beginning of the year, the value of tech shares on the markets have whipsawed along with other sectors. Macroeconomic news indicating the general state of the recovery has trumped tech sector reports about rising sales.
On Thursday, for example, markets got what may be a short-lived reprieve, spiking on new data that show gains in the business activity index put out by the Philadelphia Federal Reserve, as well as a 10th straight monthly rise in the index of leading economic indicators issued by the Conference Board, an independent group of economists and analysts. The tech-heavy Nasdaq rose 15 points to close at 2241. However, that's still below the 52-week high of 2320 the exchange hit a month ago, and U.S. exchanges -- including the Nasdaq -- started to decline again in Friday morning trading, on news that the U.S. Federal Reserve is hiking its discount rate for lending to banks.
The overriding economic issues recently have centered around the frail jobs market and continued home mortgage defaults.
For confidence in IT to grow, strong tech vendor sales need to be accompanied by solid signs of expansion in the larger economy.