Wall Street Beat: Strong Earnings Cheer IT Investors

Though Microsoft results were mixed, quarterly financial reports over the past few days from a broad range of vendors including Apple, Yahoo, and Sybase are helping to ease concerns of IT investors.

Since the third quarter last year, rising energy costs and tumult in the housing and credit markets have raised concerns that an economic slowdown in the U.S. would lead to lower tech-vendor sales and profits. However, while some IT bellwethers such as Motorola have been hit by a slowdown, so far earnings news this year has been generally positive.

Microsoft on Thursday reported an 11 percent decline in profit, to US$4.4 billion, from last year's first calendar quarter. However, observers were quick to note that last year's first quarter benefited from deferred income from Vista sales. The company had upbeat news for 2009 fiscal year earnings per share (EPS), which it forecast at $2.13 to $2.19, estimating 2009 revenue to be $66.9 billion to $68 billion. Both profit and revenue expectations beat analyst forecasts. Analysts polled by Thomson Financial had been forecasting 2009 EPS of $2.10 on revenue of $66.5 billion.

Microsoft shares slipped by $1.64 after the market closed, trading at $30.26 an hour after it released its results.

Apple on Wednesday reported strong earnings for the second quarter of 2008, as a 54 percent jump in Macintosh revenue made up for slowing sales of iPods. The company's net revenue rose 43 percent from the year earlier period, to $7.51 billion, handily beating the $6.96 billion forecast of analysts polled by Thomson Financial. Net profit increased to $1.05 billion, from $770 million.

The one sour note in the announcement was the company expectation for the current quarter, a full $0.10 below what analysts were expecting. Normally, this would have sent Apple's share price down. But Chief Financial Officer Peter Oppenheimer's prediction that Apple would meet its goal of selling 10 million iPods this year helped keep investor spirits up, and company shares rose by $6.05 to close at $168.94 Thursday.

Yahoo, under the gun as it tries to ward off a hostile bid from Microsoft, also had a strong quarter. On Tuesday it reported a revenue increase of 9 percent, to $1.818 billion. Net income excluding certain charges was $150 million, or $0.11 per share, down by $4 million from last year but beating analyst expectations of $0.09 per share. Altogether it was a solid performance from the company, but its share price sank slightly during the course of the week, possibly due to comments by Microsoft CEO Steve Ballmer. In Milan this week, Ballmer hinted that Microsoft could walk away from its offer for the company if Yahoo shareholders held out for a higher offer.

If Microsoft walks away, however, look for Yahoo stock to tank: Company shares have jumped about $10 since Microsoft made its offer.

Microsoft has said that if Yahoo does not accept its offer by Saturday, it will attempt a hostile takeover, but Ballmer's remarks suggest the company has been rethinking its strategy.

Also on Tuesday, in the telecom sector, AT&T reported that wireless and data business helped drive up income to $3.5 billion, from $2.8 billion last year. Excluding certain items, earnings per share were $0.74, meeting analyst expectations. AT&T shares jumped $0.72 to close Wednesday at $38.53.

The biggest bellwether loser this week was Motorola, which Thursday said slowing phone sales caused a net loss of $194 million, compared to a $181 million loss last year. The results were even worse than had been expected: a per share loss of $0.09, compared to a loss per share of $0.08 last year, and analyst expectations of a $0.07 loss. As most tech stocks rose Thursday, Motorola shares lost $0.28 to close at $9.27.

The Motorola results, while highlighting a highly competitive market, aren't necessarily causing widespread concern for the mobile sector. Motorola's lack of a hit product during the past year has been widely noted, and its troubles are seen to be the result of its own failings.

In the software sector, Sybase had good news on Thursday, reporting that profit skyrocketed 60 percent from last year, sparked by increases in messaging and database sales. Net income hit $24.2 million, and excluding one-time items, per share earnings were $0.39, easily beating analyst estimates of $0.34.

Sybase Chief Marketing Officer Raj Nathans said one key to the company results, the best in its history, is diversification. "The company is diversified geographically, with about 50 percent of sales coming from outside the U.S." In addition, the company is strong in several vertical markets and has worked to diversify its product lines. Sybase shares rose by $2.70 to close at $29.16 Thursday.

Diversification has also been key to the generally good results being reported by tech bellwethers over the past few weeks, which has helped bring up the tech-heavy Nasdaq to the 2400 level this week, from the 2100 level in mid-March.