Wall Street Beat: Mobile Market Hot as Tech Stays Strong

Though the bulk of category-leading tech vendors have already reported better-than-expected first-quarter financial results, there was plenty of earnings and mergers-and-acquisitions activity this week to keep IT investors excited, especially in the mobile arena.

More financial results poured in from companies including Motorola, Sprint, AOL and SAP, as Research In Motion product announcements and the Hewlett-Packard acquisition of Palm helped cause a stir in the mobile market.

Motorola, reporting Thursday, offered an upbeat outlook on smartphones.

"During the quarter, we increased smartphone shipments sequentially and introduced six new devices," said Sanjay Jha, Motorola's co-chief executive officer, in the company's earnings statement.

Motorola, whose fortunes have been bolstered by offering phones based on Google's Android OS, said that first-quarter profit was US$69 million, compared to a loss for continuing operations of $291 million a year earlier. Revenue, however, was down to $5.0 billion from $5.3 billion a year earlier.

However, both revenue and profit beat analyst expectations. Though overall phone sales were down, the company is focusing on high-margin devices, which helped boost earnings despite the decline in revenue. Meanwhile, the networks and enterprise product units helped shore up sales. Enterprise Mobility Solutions sales, for example, were $1.7 billion, up 6 percent compared with the year-ago quarter, in a good sign for the overall business IT market.

Motorola, which plans to split into two companies next year, will have to start generating more sales before it's out of the woods, but meanwhile investors gave a thumbs-up to the profit increase, with company shares closing at $7.16 Thursday, up by $0.24.

Mobile operator Sprint Nextel offered a silver lining in its financial report, issued Wednesday. Revenue for the first quarter was down 2 percent to $8.0 billion while its net loss widened 46 percent to $865 million. However, it reported that it slowed the exodus of wireless subscribers to 75,000 in the quarter, its best attempt at retaining customers since the third quarter of 2007. With the market in an upbeat mood, that was enough to boost company shares, which closed at $4.39, up by $0.13.

Hewlett-Packard rocked the mobile world Wednesday with its announcement that it plans to buy beleaguered handset maker Palm for about $1.2 billion. Though HP, the world's largest IT vendor, has a huge, global reach and deep pockets, analysts were cautious about the deal and HP shares declined Thursday by $0.40 to $52.88.

"The good news is that HP made a strong move toward becoming a player in the mobile market. The bad news is that it's the wrong move," said Forrester Research mobile analyst Charles Golvin in an e-mail note. "HP needs a strong presence in mobile, but Palm doesn't deliver that."

Though Palm still has committed users, its brand and its products have been overshadowed by strong competitors like Apple, Google and Research In Motion. Many market observers think that HP could have made a strong move in the mobile market without paying for Palm. The vote of confidence from HP did help Palm however, as shares closed Thursday at $5.84, up by $1.21.

Though RIM did not issue a financial report this week, product announcements at its annual Wireless Enterprise Symposium helped stir excitement about the company's prospects in the competitive high-end mobile market.

The company showed off two new BlackBerry smartphones, the BlackBerry Pearl 3G and the BlackBerry Bold 9650, and announced the BlackBerry Mobile Voice System 5, a voice-over-Wi-Fi service for business users. The market was receptive to the news: RIM shares jumped by $2.08 to close at $72.70 Monday, when word of the new products came out.

Financial news for the overall business IT market has been good this quarter, and SAP Wednesday confirmed positive trends. It reported that first-quarter software and software-related service sales increased 12 percent form the year-earlier period to €1.95 billion (US$2.62 billion), as profit skyrocketed 97 percent to €387 million.

Not all financial news was positive this week. AOL said Wednesday that quarterly revenue declined 23 percent from last year, from $864 million to $664.3 million, while net income plunged to $34.7 million from $82.7 million. AOL's troubles are fairly unique, however. It is finding its way as an independent Internet company once again, after decoupling from Time Warner and focusing on moving to an ad-based business model.

The big picture for IT remains strong though, as most tech leaders this week reported healthy sales growth, bolstering reports earlier this month. The Nasdaq, home to many tech companies, rose 40 points Thursday to close at 2511.

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