Wall Street Beat: Turmoil Continues Despite Tech Sales Gains

Though Cisco earnings and other good news on tech sales continue to indicate that vendors are enjoying a recovery from recession, market volatility shows that IT investors are still nervous about the future.

Reaction to Cisco's earnings announcement, made after exchanges closed Wednesday, is a barometer of how tech insiders are feeling these days. Even though Cisco announced what CEO John Chambers called one of the company's best quarters ever, company shares closed Thursday at US$25.53, down by $1.21.

Cisco's announcement followed on the heels of strong quarterly earnings from other bellwethers like Intel, IBM, Microsoft, Google and Apple. It said quarterly revenue for the period ending May 1 increased 27 percent from a year earlier to $10.4 billion, while earnings jumped 61 percent to $2.2 billion, well above analyst expectations. Cisco, as the networking industry leader and the first bellwether to report sales through April, appears to indicate that the recovery that boosted other big IT suppliers continues.

"We witnessed a return to strong balanced growth across geographies, products and customer segments that we haven't seen since before the global economic challenges began," said Chambers in a statement.

Why the negative reaction then? It could be because the company's guidance for the current quarter suggests growth may be slowing. Cisco officials forecast a 25 percent to 28 percent year-over-year growth for this quarter. On a sequential, quarter-to-quarter basis though, that would be a 3 percent to 5 percent sales increase. This is slower than the 5 percent to 6 percent sequential growth typically expected from Cisco for the quarter.

Cisco's announcement came during a week of mostly positive results from IT suppliers worldwide, especially Asian manufacturers.

Taiwan Semiconductor Manufacturing (TSMC), the world's largest contract chip maker, kicked off the week with a report of record-high chip sales for April.

The company Tuesday said sales rose 50.6 percent from a year earlier to NT$33.8 billion (US$1.07 billion).

Hitachi said Tuesday that a recovery in consumer electronics and automotive systems helped boost quarterly sales, resulting in a profit of 4.38 billion yen ($47.4 million) for the three months ending in March, compared to a 430.4 billion yen loss a year earlier.

Also on Tuesday, Semiconductor Manufacturing International (SMIC) reported its 12th-straight losing quarter, but said revenue more than doubled compared to the year-earlier period, to $351.72 million.

Consumer electronics giant Sony, meanwhile, said Monday that though it posted a ¥41 billion (US$442 million) loss for the year ending in March, the figure was about half that of last year's loss. Better yet, Sony said Thursday that it expects to go back into the black this year.

Along with the generally positive tech sales news, there was mergers and acquisitions activity this week, topped by SAP's announcement that it will acquire database vendor Sybase for $5.8 billion. The move is seen as a way to bolster the depth of its offerings in order to better compete with Oracle and Microsoft. Traders have jumped on the announcement, pushing up Sybase shares by $8.08 Thursday, closing at $64.22.

Normally, a week of positive sales reports coupled with M&A in a hotly contested sector of IT would excite investors. However, most tech vendor shares slumped along with Cisco Thursday. The tech-heavy Nasdaq slumped 30 points to close at 2394 Thursday.

Though markets have recovered losses suffered last Thursday, when the Dow recorded its biggest intraday drop -- almost 1000 points -- in history, share prices of vendors in all sectors have remained volatile. Last Thursday's decline was due to a variety of factors, including reaction to Greece's national debt, which has created turmoil in European financial markets. Federal authorities and exchange officials are also looking into possibilities that trading errors contributed to last week's market plunge.

However, continued market turmoil in the face of growing sales shows that investors are still spooked. The U.S. Labor Department said Thursday that first-time claims for jobless benefits dipped to 444,000 last week -- but that's still not down to a level that shows sustained job growth. Until the macroeconomic picture clears up, tech vendors are bound for a continued bumpy ride in the markets.

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