Wall Street Beat: IBM, Apple Riding High

Passing the second anniversary of the Great Recession's market low this week, the technology sector remains a pillar for corporate revenue and investor confidence, as industry bellwethers like IBM and Apple make impressive share gains.

On March 9, 2009, the tech-heavy Nasdaq hit 1268.64, its lowest point in seven years. In afternoon trading Friday, the index was at 2718.80. The sort of share value increases that tech companies experienced since the market bottom of two years ago is hard to maintain, and growth of IT stocks, on average, has flattened out somewhat recently.

But IT sector financial news this week shows that corporate demand for IT and consumer demand for mobile devices remains high.

A jump in IBM shares, to a record level, was just one marker of confidence in corporate IT. Analysts met with IBM management Tuesday and issued a raft of upbeat reports about what they heard.

At least four analysts upgraded their recommendations or price targets, and as a result IBM shares surged by $3.58 to close at a record US$165.86 Wednesday. IBM's high-end services business and its emphasis on high-margin software and hardware has impressed market watchers.

"We get the sense IBM has rejuvenated pride in its massive $6 billion annual research and development spend, in contrast to more standards/commodity-reliant competitors, seeing continued opportunities toward ever-higher margin mix," said Robert Cirha, in a Caris & Co. research note.

IBM, a major bellwether for the enterprise market, kicked off a strong tech earnings season in January, reporting that net income for the fourth quarter rose 9 percent year over year to $5.3 billion, while revenue increased by 7 percent to $29 billion. It was the strongest quarterly sales increase for IBM in almost 10 years, and in line with predictions that enterprise sales, particularly software, will be a key driver of growth for IT for the foreseeable future.

Mobile devices including tablets will also fuel growth for tech, according to a slew of recent reports. For example, 10.1 million media tablets were shipped in the fourth quarter of 2010, more than double the 4.5 million shipped in the third quarter, according to an IDC report Thursday.

The report also said that the eReader market jumped up in the fourth quarter. Strong sales of Amazon's Kindle and gains from Pandigital, Barnes & Noble, Hanvon, and Sony also contributed to market growth, IDC said. The eReader market in the fourth quarter more than doubled in volume from the previous quarter, with more than 6 million units shipped, IDC said.

"Strong holiday sales of media tablets were in line with IDC projections and strong consumer interest in the category while device vendors scrambled to offer products competitive with Apple's iPad and now iPad 2," said Loren Loverde, an IDC vice president, in the report.

Apple, which has more than 90 percent of the tablet market at this point, is releasing the iPad 2 Friday and is basking in the glow of its latest hit product. Apple shares were up by $4.89 to $351.52 in late afternoon trading.

Increased uptake of tablets and high-end smartphones is also having a positive effect on corporate equipment sales, as companies scramble to update networks to handle an increase in traffic from the new devices.

For example, global WLAN (wireless LAN) equipment sales jumped by 28 percent to $769 million in the fourth quarter of 2010 compared to the same period in 2009, according to a report last week from Infonetics Research. On Wednesday, a report from Dell'Oro Group said that for all of 2010, WLAN equipment sales jumped 25 percent to surpass $5 billion.

"We believe this to be a another sign of the continued importance of wireless LAN to companies; networking infrastructures, and of a worldwide economy that is on the upswing," said Loren Shalinsky, senior analyst of Wireless LAN research at Dell'Oro, in the report.

With attention on corporate software and mobile devices, the PC sector hasn't gotten much respect lately. But iSuppli this week pointed out that global PC shipments in the fourth quarter of 2010 totaled 93.1 million units, up 5.7 percent from 88.1 million in the third quarter of 2010, and a 4.7 percent increase from 88.9 million in the fourth quarter of 2009.

PC shipments during the fourth quarter hit a new quarterly record, "blowing past" the prior record of 88.9 million units set in the fourth quarter of 2009, the report said.

"With its record performance during the last three months of 2010, the worldwide PC business took another step toward becoming a market generating 100 million units per quarter," said Matthew Wilkins, principal analyst at iSuppli. "With the market coming back strong amid growth in the mid-teens, the PC industry will look back on 2010 as a year that exceeded expectations."

Though much of the growth in the last two years took place in the quarters immediately following the 2009 low point, the tech sector is still looking up.

By the third quarter last year, the Nasdaq and the other major U.S. exchanges were already back up to the level they were at before Wall Street imploded in September 2008. Tech had a lot to do with instilling confidence in the markets. Though tech stocks slumped for most of the third quarter last year as fears of a double-dip recession took hold, IT companies, reporting strong sales especially to businesses, started to lead markets after the U.S. Labor Day holiday at the beginning of September.

Now, computer shares on the exchange are up an average of 1.56 percent since Jan. 1 and telecom stock are up 0.13 percent -- both better than any other major sector aside from industrials. The Nasdaq itself is up 1.82 percent since the beginning of the year and 14 percent for the last 12 months.

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