Wall Street Beat: IT Investors Eye Bellwether Financials

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Earnings season has begun in earnest, with investors scrutinizing reports from IT stalwarts like IBM, Dell, Google, Nokia and Sun for reasons to expect a strong second half of the year.

So far, the second quarter for some of the leading vendors was better than expected, and several IT companies indicate that overall tech spending has reached the bottom for the year.

Internet search giant Google Thursday reported net income, excluding one-time charges, of US$1.71 billion, or $5.36 per share, up from $1.47 billion, or $4.63 per share, in the same quarter last year. Net revenue hit $4.07 billion, up from $3.9 billion. In a tough quarter, the Internet star once again shone, as it beat analysts' expectations for revenue of $4.05 billion and earnings of only $5.05 per share, according to Thomson Reuters.

Google CEO Eric Schmidt seemed careful not to sound too ebullient in a statement in which he called the quarter "very good."

"These results highlight the enduring strength of our business model and our responsible efforts to manage expenses in a way that puts us in a good position for the economic upturn, when it occurs," Schmidt said.

Google shares were up by $4.43 to $442 in after-hours trading shortly after the results were announced.

IBM shares also jumped after market hours Thursday to $110.64, up by $3.44 right after it announced income that blew past Wall Street expectations. Second only to HP among IT vendors in yearly turnover, IBM reported earnings of $3.1 billion, up 12 percent from last year. Earnings per share were $2.32, up from $1.97 a share in the same period last year and easily beating the estimate of $2.02 a share forecast by analysts polled by Thomson Reuters.

IBM sales were $23.3 billion, down 13 percent from last year and a little under analyst expectations.

But the good news for the rest of the year is that IBM says it will generate earnings of "at least $9.70" per share, up from its previous outlook of $9.20.

Dell, the leading PC vendor behind Hewlett-Packard, said earlier this week that demand is "stabilizing" and that after three quarters of revenue decline it expects to finish its current financial quarter, ending July 31, with a sequential increase in sales. The company did not paint a completely rosy picture, however, saying that the recession and price competition are putting the squeeze on profit margins.

Worldwide PC shipments for 2009 are still expected to decline by 4 percent, to 287.3 million units, according to a research note by iSuppli this week. That's better than the approximately 9 percent decline many researchers were expecting a few months ago, but still a significant drop for the year.

Mobile handset sales are also experiencing a big drop, especially in the low-end phonetString := StoryDateLine + " (" + @Text(StoryFiledDate) + ") - "; @If(datelineinbody = "No"; tString; "") market. Nokia Thursday reported second-quarter sales that were 25 percent lower, at €9.91 billion (US$13.9 billion), than a year earlier, with net income down by 66 percent to €380 million. However, even though it said it does not expect its own market share to grow this year, the company did say it expects that global mobile-phone shipments will remain stable or increase slightly in the third quarter.

The software market has also been shaken up during the first half. Sun Microsystems said Tuesday that it expects a drop in sales for the June quarter. The company, whose shareholders voted Thursday to accept a takeover bid by Oracle, forecasts revenue for the June quarter to be between $2.58 billion and $2.68 billion, down from $3.78 billion last year.

Sun sales may have been affected by news of its imminent acquisition by Oracle. Microsoft might give a better read on the software sector when it reports next Thursday. Other IT bellwethers reporting financials next week include VMware, Apple, Yahoo and Advanced Micro Devices.

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