Wall Street Beat: Tech Makes Gains in First Quarter

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An uptick in sales for bellwether vendors and rosy forecasts for the rest of 2010 have continued to fuel the recovery in technology stocks, which finished the first quarter in positive territory for the year.

On Wednesday, the last day of the quarter, Nasdaq computer stocks were up 2.53 percent and telecom stocks were up 4.86 percent since the start of the year. The broader stock indexes also rose, indicating confidence that the recession is receding. The Dow Jones Composite ended March with a 3.15 percent gain for the year while the New York Stock Exchange Composite increased 3.6 percent.

Over the last 12 months, however, the tech sector has been the major star, with Nasdaq computer stocks rising 63 percent and Nasdaq telecom shares increasing 45 percent, leading the broader market recovery from the Great Recession.

The general optimism has helped boost the fortunes of tech companies launching initial public offerings. On Wednesday two company IPOs gained traction. Shares of Meru, the wireless networking equipment vendor, were offered at US$15 and closed at $19.17. Meanwhile, financial services software maker SS&C also offered shares at $15, and saw them close at $15.08.

The climate for tech IPOs seems to have warmed up recently. Other March IPOs, for example, were launched by Calix Networks, a networking equipment maker, and MaxLinear, a processor manufacturer.

All this comes as U.S. executives remain more bullish about their business prospects over the next 12 months than their European counterparts, according to the latest KPMG Global Business Outlook survey issued Monday by KPMG International. The European outlook has been somewhat clouded by economic problems in Portugal, Spain and Greece.

"Overall executives are telling us they are optimistic about the future, particularly in the United States, where the recovery appears to be taking hold more quickly than in Europe, as well as in the BRIC countries, which were generally less impacted by the downturn," said Mark Goodburn, vice chairman and head of advisory for KPMG, in the report.

The general optimism about the recovery has been magnified in tech circles by strong financial reports issued during the first quarter. A broad swath of tech bellwethers such as Intel, IBM, Apple, Google, Oracle and Microsoft reported sales figures that were significantly higher than a year earlier, in the depths of the recession.

Apple, especially, has been riding high after reporting a strong quarter and benefitting from excitement about new products. In January, Apple reported revenue of $15.68 billion for the last three months of 2009, up from the $11.88 billion in revenue a year earlier.

"If you annualise our quarterly revenue, it's surprising that Apple is now a $50+ billion company," said Steve Jobs, Apple's CEO in a statement. "The new products we are

planning to release this year are very strong."

The iPad, due out Saturday, has been sold out in pre-ordered initial shipments. All eyes are on Apple to see if it can redefine the tablet computer market, as it reshaped the music industry with the iPod and the phone market with the iPhone. Meanwhile, rumors that Apple would make an iPhone for Verizon Wireless helped boost company shares to an all-time high of $235.85 Tuesday.

Still, there is a jitteriness underlying the general optimism. Though technology has led other sectors out of the recession over the last 12 months, shares of computer companies have not done quite as well as business in finance, health care and transportation in the first quarter.

In addition, investors jump on any piece of bad news from tech vendors, even in situations where vendors are reporting sales increases.

For example on Wednesday BlackBerry maker and Apple rival Research In Motion reported that fourth-quarter earnings rose 37 percent to $710 million while revenue increased 35 percent to $4.08 billion.

"We are off to a great start in fiscal 2011 and expect strong shipments, revenue, subscriber and earnings growth in Q1," said Jim Balsillie, co-CEO at Research In Motion, in the report. "We are also very excited about our portfolio of products and services for the coming year and we continue to see exceptional opportunity for sustained growth."

However, revenue did not meet the company's prior expectations of $4.2 billion to $4.4 billion. Investors on Thursday dumped the stock, which was down to $68.82, down by $5.15 shortly before the market closed Thursday, the first trading day of the new quarter.

The tech-heavy Nasdaq was also heading for a lower close Thursday, down by 4.5 percent to 2393 in the afternoon.

With U.S. markets set to close Friday for the Easter long weekend, traders will have a day to digest the monthly jobs figures due out from the Labor Department Friday. Expectations are high, not only for the jobs report, but also for first-quarter earnings reports that will start to roll out over the next few weeks.

Though optimism appears to be high, expect quick investor reaction to any bad news that might appear.

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