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Wall Street Beat: Tech earnings show sector strength

Weaknesses remain in the consumer market, as some vendors post record results

A raft of computer and software vendor financial results this week, including reports from IBM, Intel, Apple and Microsoft, revealed some record quarterly results and a healthy market for business technology, though clouds remain for segments of the consumer arena.

Economic worries, including concerns about unemployment, the housing market and European debt crisis battered tech stocks along with the rest of the market over the past few months, sending shares of IT companies below their levels at the start of the year. As evidence of strong second-quarter IT sales, especially in the enterprise arena, trickled in over the past few weeks, tech company shares have risen.

This week the stream of announcements became a flood. While other major indexes were down Friday morning, the tech-heavy Nasdaq moved up by 9.29 points to 2,844.36 in midday trading. Computer companies on the Nasdaq are up for the year, in aggregate, by about 6 percent.

Meanwhile, even though Microsoft on Thursday reported record fiscal fourth-quarter revenue, trading in company shares wavered Friday morning, moving in and out of positive territory. Microsoft's results in some ways were a microcosm of IT earnings, showing strong enterprise sales but softness for products geared for consumers.

Microsoft reported an 8 percent year-over-year revenue increase, to US$17.37 billion, and a whopping 30 percent jump in profit to $5.87 billion. Sales to businesses were strong. Microsoft Business Division sales rose 16 percent for the year and 7 percent for the quarter. However, what appears to be worrying investors is a 1 percent decline for the quarter (and 2 percent decline for the fiscal year) for sales for the Windows and Windows Live Division, as PC sales to consumers flagged.

The tone for enterprise sales was set Monday by IBM, which posted better-than-expected results and raised its outlook for the year.

IBM's numbers showed it was hitting on all cylinders in the second quarter, reporting a 12 percent year-over-year jump in revenue to $26.7 billion and an 8 percent increase in profit to $3.7 billion.

The quarter gave the company confidence to raise its financial guidance for the year.

"We've taken our expectations for operating EPS up to at least $13.25. That's up $0.25 since January,"said IBM CFO Mark Loughbridge, on the company's earnings conference call. "We're exiting the second quarter with a lot going for us, a strong systems portfolio, continued momentum in software, growth in services backlog with a lot of opportunity in growth markets, momentum in all of our key growth plays and a very strong balance sheet. "

Intel backed up the good news on the hardware side on Wednesday, reporting that quarterly net income rose 2 percent to $3 billion while sales jumped 21 percent to $13 billion. It was the company's fifth consecutive quarter of record revenue. In contrast to market-research reports of slow PC growth, Intel said sales for PCs rose by 11 percent for the quarter.

There were a few clouds in the Intel report. Intel CFO Stacy Smith noted there was some "softness" in mature consumer product categories, and Atom microprocessor shipments declined during the second fiscal quarter. But overall, Intel experienced growth in every major product category.

"The Data Center business is up 15 percent; Embedded is up 25 percent; NAND is up 15 percent; and our PC Client business is up 11 percent," said Intel CEO Paul Otellini in a conference call.

Otellini said he expects sales to continue to expand by more than 20 percent for the rest of the year.

In the enterprise software arena, storage giant EMC said Wednesday that demand for "big data" and cloud computing applications helped generate record quarterly financial results. For the quarter, EMC sales rose 20 percent to $4.85 billion. EMC raised its financial outlook for the year to revenue of more than $19.8 billion.

Apple's strong earnings announcement on Tuesday provided a complement to enterprise-oriented news, and showed that the consumer market can be strong -- for the right products. Solid iPad and iPhone shipments helped boost both profit and revenue. Apple's profit for the quarter was $7.31 billion, up from $3.25 billion a year earlier, while revenue was $28.57 billion, up from $15.7 billion.

"Apple's industry leading software ecosystem (over 225 million installed base of iOS device sales) and its leading hardware expertise will lead to a strong multi-year product cycle for its key products," according to a research note by Canaccord Genuity " While multiple Google (GOOG) Android-based tablets are expected to launch over the next several months, Apple has roughly 65,000 tablet-specific apps while Android has less than 1,000," the report noted.

Despite the generally good news from tech bellwethers this week, some vendors experienced mixed results:

-- Intel rival Advanced Micro Devices, said quarterly net income increased to $61 million from $43 million, but sales declined by 5 percent to $1.65 billion.

-- Nokia said net sales declined 7 percent year over year to €9.275 billion (US$13.35 billion), but sales of smartphones plunged 32 percent in value (and 34 percent in volume) to €2.37 billion.

-- Though Yahoo increased net income by 11 percent to $237 million, total sales declined 23 percent year on year to $1.22 billion, due to its struggling display ad business.


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