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Outlook good for IT earnings

Outlook good for IT earnings

With shares of major technology companies trading as high as they have ever done in the post dot-com era, IT investors this week are scrutinising quarterly results from the world's biggest vendors to judge how the market will hold up for the rest of the year.

Market analysis firms started off the year predicting an overall global annual IT spending increase of about 6.5 percent, so no one was expecting technology vendors to experience growth at the heady rates of the late 1990s. But even as competition squeezes profit margins, results overall point to a healthy 2007.

In the hard-fought internet services arena, product development and customer acquisition costs remain high, but Google continues to show skyrocketing growth. On Thursday it reported second quarter net income rose 28 percent from a year earlier to hit US$925.1 million as revenue, minus traffic acquisition costs, surged by 63 percent to reach $2.72 billion, above the average forecast of $2.68 billion by analysts polled by Thomson Financial.

In the chip sector, Intel has reported that even though gross margins on product sales shrank, profit for the second quarter increased 44 percent from last year to $1.3 billion. Company officials said that revenue for the third quarter would be $9.0 billion to $9.6 billion, beating its previous forecast.

IBM also raised its earnings forecast for the rest of the year on Wednesday and reported that second quarter results were its best in six years. Net profit was $2.3 billion, up 11.8 percent increase from a year earlier, on revenue of $23.8 billion, up nine percent.

In software, Microsoft was upbeat about its core business on Thursday. Though it faces a mature market for its cash-cow products, it said sales of operating systems, server software and tools fueled a 7.3 percent rise in net income as revenue rose 13 percent to $13.38 billion. Both profit and sales beat Wall Street estimates.

However, companies like Motorola reminded investors that in an era of moderate growth, not everyone can win big. Two days after announcing it would restructure operations, the handset maker on Thursday reported that disappointing sales of mobile devices led to a second-quarter loss of $28 million, down from net income of $1.38 million a year earlier. Product design has become a crucial issue as the North American and European markets mature.

Yahoo meanwhile suffered in the internet services market, reporting that net income for the quarter was $161 million, down from $164 million one year earlier. Yahoo also lowered its earnings guidance for the rest of the year.

Despite disappointing results in some of the harder-fought areas of IT, overall earnings news and guidance for the rest of the year, coupled with the latest reports on customer spending, suggest that 2007 could end up being one of the brightest years in the wake of the dot-com bust.

The tech-heavy Nasdaq stock market index hit six-and-half year highs this week and last, and customer spending seems to be exceeding forecasts.


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