Wall Street Beat: Mobile, Chip Sales Look up

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Semiprocessor sales and mobile services remain bright spots for the tech sector, as concerns about the economy continue to dampen share prices for IT vendors.

Share prices did get a lift this past earnings season, as major bellwethers such as Apple, Intel, IBM, Microsoft and Google reported strong -- in some cases, record -- revenue for the second calendar quarter of the year. From July 12, the start of the week in which Google and Intel reported strong sales, until the market closed Thursday, the Nasdaq, home to many leading tech vendors, rose from 2198 to 2295.

Nevertheless, the exchange is still down from its peak for the year, reached on April 23, when the Nasdaq hit a 52-week high of 2530. Even after a very strong earnings season over the past few weeks, computer-specific stocks on the Nasdaq are down 0.21 percent for the year and telecom stocks are down 1.66 percent for the year.

Stock exchanges fell again Thursday as U.S. Department of Labor data indicated that initial claims for jobless benefits rose to 479,000, the highest level since early April.

Still, tech sector news continues to look up, especially in markets related to mobile devices and hardware. Worldwide sales of semiconductors in the second quarter of 2010 increased to US$74.8 billion, up 7.1 percent from the first quarter, the Semiconductor Industry Association (SIA) said this week.

In June, sales of $24.9 billion were 0.5 percent higher than in May.

"Sales in the first half of 2010 were exceptionally robust, driven by strong demand from a broad range of end markets," said SIA President Brian Toohey in the report. Global chip sales of $144.6 billion for the first half of 2010 were more than 50 percent higher than in the same period of 2009, he said.

"We expect that sequential growth rates will moderate in the coming months, with the result that year-on-year growth for the industry will be in line with our mid-year forecast of 28.4 percent," Toohey added.

Chip sales are doing well primarily because businesses and consumers have started upgrading hardware like PC and laptops this year, after holding off on purchases during the recession.

IT spending jumped in the first half of the year, led by spending by businesses, governments and consumers as they take advantage of a stabilized economy to meet pent-up demand for new PCs, servers, storage and network equipment, according to an IDC report this week.

IDC raised its forecast for annual IT spending in 2010 to $1.51 trillion, growth of 6 percent in constant currency. Spending on hardware will increase by 11 percent to $624 billion, while spending on software and services will rise by 4 percent and 2 percent, respectively, IDC said.

"The first half of 2010 was robust by any standards for the IT industry," said Stephen Minton, vice president of Worldwide IT Markets and Strategies at IDC, in the report. "PC shipments were strong, enterprise spending began to recover from the depths of the Great Recession, and consumers remained enthusiastic about new devices such as smartphones. While the high growth rates recorded by many vendors in the first two quarters of 2010 are partly a reflection of how bad things were in the same period of 2009, there's also no doubt that it partly reflects a very real swelling of pent-up demand for hardware replacements and upgrades."

The importance of mobile devices as an engine of growth was underscored by a report from Research and Markets this week, which predicted that by 2015 mobile services will generate more revenue than fixed-line services.

"All of the major broadband service providers already, or are beginning to, provide service bundles that integrate mobile broadband services, a key area of differentiation," the report said. "By 2015, we expect mobile services to overtake fixed in terms of revenue."

But investors and market watchers remain wary. This gap between investor caution and sales results can be explained by disappointing economic indicators such as flat housing sales and stubborn unemployment figures, which suggest that outside of certain strong sectors such as IT, economic recovery is anemic. A weak general economy may yet drag down IT, once the initial rush of hardware upgrades this year is over.

"Amidst the general sense of optimism that has accompanied results from the first half of this year, there are also reasons to be wary of excessive exuberance," said IDC's Minton. "Our surveys indicate that businesses are still cautious about committing to new, long-term IT projects, and are still anxious about the possibility of a double-dip recession. Decision-making cycles remain long, and many enterprises have contingency plans in place for the next 12 months which could see more projects suspended."

Despite the great sales figures for the second quarter, it turned out to be the worst second quarter for the markets since 2002, during the dot-com bust. At this point in the year, it is clear that IT sales alone will not restore confidence -- even for tech companies themselves.

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