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Wall Street Beat: Tech shows signs of growth

Wall Street Beat: Tech shows signs of growth

Cloud and storage technology are expected to make gains this year

Though tech spending in the near term is not expected to increase at the heady rates of the dot-com era, industry insiders appear confident that the sector will trend upward this year.

IT vendor quarterly reports this week looked promising. For the three months ending Feb. 28, Oracle revenue rose 4 percent year over year to US$9.3 billion while net income increased 2 percent to $2.6 billion. New software licenses and cloud subscriptions fueled the growth, but the company also noted that hardware product sales, which had been flagging, also increased.

Company executives made the case for Oracle's strategy of packaging together software and hardware, and highlighted growth in cloud-based offerings.

"Oracle's Engineered Server Systems, including Exadata and SPARC SuperClusters, achieved over a 30 percent constant currency growth rate in the quarter, while throughout the industry traditional high-end server product lines are in steep decline," said Oracle CEO Larry Ellison in a statement. "Our Engineered Systems business is growing rapidly for the same fundamental reason that our Cloud Applications business is growing rapidly. In both cases, customers want us to integrate the hardware and software and make it work together, so they don't have to."

Oracle shares declined right after the earnings were released on Tuesday, however. Even though the upturn in hardware was welcome news, the company missed forecasts by analysts and its stock was downgraded to "hold" from "buy" by Argus Research as a result. Still, other investment advisors stood by their prior recommendations on company stock, pointing out that the shares are relatively inexpensive compared to what the company earns.

"Oracle and IBM remain two of the best technology selling machines on the planet," wrote Canaccord Genuity analyst Richard Davis in a research note. "We will continue with our BUY rating on Oracle because the stock is sufficiently inexpensive to serve as ballast in your typical software portfolio, full of high flier money losers which can face random and rapid loss of faith by investors."

Content-creation software company Adobe Systems, meanwhile, reported revenue of $1 billion for the quarter ending in February. Sales were flat year over year, but at the upper end of expectations, and analysts focused on the company's success in transitioning users to cloud-based technology.

Adobe said that it ended the quarter with 1.844 million subscribers of its Creative Cloud software, an increase of 405,000 over its prior quarter.

Cloud computing is expected to drive growth over the next several years. Speaking at the IDC Directions conference in Boston this week, analyst Rick Villars said cloud computing was a $47.4 billion industry last year, and is expected to increase to $107 billion by 2017.

Cloud technologies allow companies to offer services and products on a scale that they would otherwise not be able to achieve, Villars said.

Cloud technology's 23.5 compound annual growth rate is five times greater than that of the technology market as a whole, Villars pointed out.

Global spending on technology will increase year over year by 6.2 percent in U.S. dollars, to $2.22 trillion in 2014, according to a Forrester forecast. That does not match the double-digit growth rate that tech experienced prior to the Nasdaq's peak in March 2000, but is much better than IT market growth of 1.6 percent in 2013.

This week, Gartner said that storage is among the tech sectors expected to start trending up again this year. Sales of external controller-based storage, including hard-drive and flash arrays, rose to US$6.3 billion worldwide in the fourth quarter, up 5 percent from a year earlier, Gartner said.

"Following an abysmal third quarter, the fourth quarter of 2013 returned to growth. Driven by pent-up demand and the year-end budget flush phenomenon, the market overcame a fragile global economy and grew a strong five percent over the same period in 2012" said Roger Cox, research vice president at Gartner.

The year as whole was dismal for storage, which registered 1.4 percent revenue growth year over year, to $22.5 billion. This year, Gartner expects the market to speed up to 3 percent growth.

Signs of growth have spurred investor confidence. Though the tech-heavy Nasdaq Composite Index declined slightly in afternoon trading Friday, computer company shares on the exchange are up more than 32 percent from a year ago and almost 3.5 percent for the year so far.

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