Wall Street Beat: No Letup in IT Earnings Mayhem

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Anyone daring to hope for better financial news from IT vendors this week has been sorely disappointed, as the financial report season continues with layoff announcements by SAP, IBM, Sprint, AOL, Citrix, Texas Instruments and Eastman Kodak, as well as losses and revenue declines.

Citing a turbulent market, few tech companies offered sales forecasts, and most of those that did revised figures downward.

Though the hardware sector is expected to take the brunt of the global economic downturn for IT, software is not being spared. SAP said Wednesday it will cut about 3,000 workers this year, even though it reported one of the strongest fourth quarters in the tech sector, with net income rising 13 percent to €850 million (US$1.13 billion). Even so, SAP declined to issue earnings guidance for this year.

"Since September we have been talking about a new reality in the world's economy," said co-CEO Léo Apotheker during an earnings call.

Middleware vendor Citrix on Wednesday said it would reduce headcount by approximately 10 percent. Fourth-quarter profit dipped to US$60.1 million, compared with $62.3 million a year earlier.

IBM, one of the few vendors to issue a relatively upbeat forecast last week, this week ended up confirming reports of layoffs. IBM didn't specify numbers, but the company cut 1,419 positions in software and 1,449 sales and distribution jobs, according to union sources.

The recession is hitting consumer electronics companies especially hard. Sony Thursday said quarterly profit declined by 95 percent to ¥10.4 billion (US$115 million), as the worldwide downturn hit sales of digital cameras, video cameras and PCs.

Reporting a sharp decline in demand for digital cameras as well as commercial printing equipment, Eastman Kodak on Thursday announced a $137 million quarterly loss and said it would cut as many as 4,500 jobs this year. The report sent shares of Kodak to an historic low.

On the hardware front, Toshiba said it expects to report its first loss in seven years. The vendor lowered its forecast for its fiscal year ending March 31 when, on Thursday, it reported a loss of ¥121 billion (US$1.3 billion) for the last quarter of 2008.

Server sales are not doing better. Sun Microsystems Tuesday reported an 11 percent drop in quarterly revenue, to $3.22 billion, and a net loss of $209 million.

The news translates into losses for chip makers. Texas Instruments said Monday it will cut its workforce by 12 percent, or 3,400 employees, and announced an 86 percent drop in profit and a 30 percent decline in sales for the fourth quarter. For its part, Qualcomm Wednesday said quarterly net income dropped 56 percent to $341 million.

The few IT vendors with good news also ran into headwinds. EMC said Tuesday that quarterly revenue, including its VMware virtualization software business, reached a record $4.02 billion. But hit by restructuring costs, the company reported net income was $288 million, a steep decline from $526 million a year earlier.

Restructuring charges led Yahoo Tuesday to report a net loss of $303 million, compared to net income of $206 million a year earlier, though excluding one-time items, the company had net income of $238 million, or $0.17 per share, $0.04 per share above the expectation of analysts polled by Thompson Reuters.

Elsewhere in the Internet arena, Time Warner's beleaguered AOL Internet unit said Thursday it will lay off 700 employees.

Amazon, also on Thursday, managed to offer a bit of good news for e-commerce when it reported fourth-quarter net income of $225 million, up from $207 million, on sales of $6.7 billion, up 18 percent.

The telecom sector also showed some strength this week. Verizon, banking on wireless as well as FiOS TV and high-speed Internet services, said Tuesday it posted net income of US$1.2 billion in the fourth quarter of 2008, up slightly from $1.1 billion in 2007.

AT&T, pushing high-end mobile devices such as the iPhone, said Wednesday it posted quarterly operating revenue of $31.1 billion, up from $30.3 billion a year earlier. Declining demand for voice offerings and upfront costs involved with carrying the iPhone, however, curbed net income, which came in at $2.4 billion, down from $3.1 billion in the previous year.

"The nation's top telecom service providers continue to do strong business, even as the economy continues to burden the rest of the business world," said telecom analyst Jeff Kagan in an e-mail message. "As customers continue to watch where they spend, they continue to pay for the basics like telephone and wireless and television and broadband."

This may not be the case for Sprint Nextel, however. The wireless company said Monday it will lay off about 8,000 employees this year. It will report its fourth quarter in two weeks.

Recently, market researchers have cut forecasts for global IT spending. Companies such as Forrester Research now expect a global decline in IT spending, measured in dollar terms.

Given the disappointing earnings news over the past two weeks and IT vendors' lack of visibility into customer spending plans, it may be only a matter of time before market watchers cut the annual forecasts yet again.

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