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Wall Street Beat: Tech Stocks Rally at End of Quarter

Apple, Oracle, Google, IBM and other tech bellwethers helped fuel U.S. markets to an unusually impressive end to the third quarter, as the value of shares traded in the U.S. posted their biggest September gains in decades.

Dell, Cisco, Microsoft, Yahoo and Amazon were among the other multibillion-dollar IT companies making gains last month, driving the tech sector into positive territory on U.S. exchanges for the third quarter.

For most of the third quarter -- even as IBM, Apple, Microsoft and Google racked up strong and in some cases record sales and earnings -- tech stocks were in the doldrums as fears of a double-dip recession took a toll on investor confidence.

But the IT sector started to lead markets higher after the U.S. Labor Day holiday at the beginning of September. The tech-heavy Nasdaq made the biggest jump of all, gaining almost 12 percent during the month. The broader-based Dow rose 777 points, or 7.7 percent, its biggest gain for the month in 70 years.

Most IT and tech-related shares are now ahead of where they were at the beginning of the year, after a steep decline at the end of the second quarter. Computer stocks on the Nasdaq closed the third quarter Thursday up by 2.32 percent for the year (though telecom stocks were down by 0.96 percent). On the New York Stock Exchange, the tech/media/telecom category closed the quarter up by 2.16 percent.

The more time passes from what is now considered the end of the recession -- the second quarter of 2009 -- the more IT executives appear to ready to spend on technology. Sixty-four percent of IT leaders polled by the latest CIO Economic Impact Surveysaid they plan to increase IT capital spending in the next year, up 8 percent from April. The survey polled over 250 IT executives about spending plans and business outlook.

Likewise, investors appear to be finally taking heart in the strong results posted by IT bellwethers. Over the last few weeks, IT companies have reported results through August that for the most part have been upbeat. Software companies have made especially strong gains lately. Earlier this month, for example, Oracle reported that revenue for the quarter ending Aug. 31 increased 48 percent to US$7.5 billion, while profit was up 20 percent to $1.4 billion.

During the third quarter, Oracle shares rose from $21.65 to $26.85, Google shares rose from $439.49 to $525.90,and Microsoft's rose from $23.16 to $24.49. Apple, riding on a wave of enthusiasm for the iPhone and iPad, was a big winner, as shares jumped from $248.48 to $283.75 during the period.

Apple's market value is now $258.7 billion -- the highest market cap in the world after Exxon Mobile -- and many analysts think it will continue to rise. As high as Apple's market value is, its multiple -- the share price relative to earnings per share -- is still lower than some tech companies including Google. Kaufman analyst Shaw Wu, for example, raised his price target for Apple from $350 to $374, saying in a research note that potential iPad sales were "enough to drive significant upside to consensus estimates."

Despite all this, some areas of IT may not do as well as expected this year. With consumer demand flagging a bit now compared to earlier this year, and inventories rising, the market research firm iSuppli Thursday trimmed its 2010 semiconductor revenue growth forecast to 32 percent, down from its previous outlook of 35.1 percent. Global semiconductor sales now are expected to amount to $302 billion in 2010, up from $228 billion in 2009

Some industry insiders still fear a double-dip recession, at least in certain sectors. "Unstable economic conditions and worrisome market reports continue to create an environment of poor visibility and ongoing uncertainty in the electronics industry," Dale Ford, senior vice president at iSuppli, said in his report.

AMD lowered its revenue guidance for the fiscal quarter ending last week, which did not help the case for the chip sector.

AMD shares during the quarter dropped from $7.39 to $7.11, Intel slipped from $19.25 to $19.20. HP was another loser during the quarter, declining from $42.80 to $42.07, as it suffered through a change at the top, forcing out CEO Mark Hurd following an investigation into claims that he sexually harassed a former contractor to the company.

The new HP CEO, Leo Apotheker, appointed on Thursday, does not appear to inspire confidence. HP shares were trading at $40.55 midafternoon Friday, down by $1.53. Apotheker was booted from SAP after years of trying to get the software vendor's Web strategy together.

Despite the somewhat patchy nature of the September rally, tech stocks may be poised for further growth. The latest U.S. government figures show GDP grew 1.7 percent, slightly higher than expected, in the second quarter, and traditionally the fourth quarter has been a positive one in the markets at least for larger U.S. companies. If the tech bellwethers continue to report solid sales figures in the next wave of earnings reports due later this month, investors might get bolder than they have been so far this year.

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