Wall Street Beat: Apple, IBM, AT&T Earnings Fuel Markets

Some of the biggest names in computers and telecommunications including Apple, IBM, EMC and AT&T turned in solid and in some cases record earnings this week, indicating a strong end to the year for tech.

Some of the biggest names in computers and telecommunications including Apple, IBM, EMC and AT&T turned in solid and in some cases record earnings this week, indicating a strong end to the year for tech.

The weak global recovery from the recession, however, continues to cause a lot of second-guessing about the continued strength of the tech sector. A new report from Gartner this week, for example, forecasts an anemic increase in enterprise IT spending over the next few years.

Worldwide enterprise IT spending will reach US$2.5 trillion in 2011, a 3.1 percent increase from 2010 spending of $2.4 trillion, according to Gartner. But over the next five years, enterprise IT spending will go through a period of timid growth with spending totaling $2.8 trillion in 2014, Gartner said.

"Several key vertical industries, such as manufacturing and financial services, will not see IT budgets recover to pre-2008 levels before 2012 or 2013," said Peter Sondergaard, senior vice president at Gartner.

IBM, which depends on enterprise spending, reported strong earnings but was beat out Monday by record Apple quarterly results that made the consumer electronics vendor the most profitable U.S.-based technology company behind Microsoft.

Thanks to strong sales of Macs, iPhones, and iPads, Apple reported record revenue and profit for its fiscal fourth quarter. Apple's earnings were $4.31 billion, compared to $2.53 billion for the same period last year, while sales were $20.34 billion in revenue, a whopping 67 percent jump from $12.21 billion.

The iPhone's popularity played a big part in AT&T's results. AT&T on Thursday reported revenue of $31.6 billion for the third quarter, up 2.8 percent from the third quarter of 2009, with gains from the iPhone fueling growth.

Apple is now poised to take advantage of an uptick in consumer spending expected during the end-of-the-year shopping season. A new forecast from IBM indicates that consumer electronics spending in the U.S. will be healthy in November and December.

"Retailers should be ready for a robust Black Friday and Cyber Monday," according to a statement from IBM Global Business Services partner and retail analytics leader Michael Haydock, referring to the Friday and Monday following the U.S. Thanksgiving holiday, which this year falls on Nov. 25. U.S. retail electronics sales will rise to $20.89 billion during the last two months of the year compared to $19.97 billion in 2009, according to the IBM forecast.

Mobile-phone maker Nokia, playing catch-up with Apple's iPhone and Google's Android, will also be vying for a larger slice of consumer spending. The company announced a reorganization Thursday when it reported results. Sales for the quarter totaled €10.3 billion (US$14.21 billion), up 5 percent compared to a year earlier, while net profit was €529 million, up from a €559 million loss in the 2009 quarter.

In enterprise earnings news this week, IBM reported strong results Monday. IBM said that third-quarter net income rose 12 percent to $3.6 billion, while total revenue was $24.3 billion, a jump of 3 percent. Analytics software and services were bright spots, along with especially strong sales in the BRIC countries: Brazil, Russia, India and China.

Meanwhile, other enterprise-focused vendors this week offered good news. EMC said Tuesday that its third-quarter net income rose 58 percent to $472.5 million. Revenue was $4.2 billion, up from $3.5 billion.

The enterprise server virtualization trend boosted quarterly results for VMware, which on Monday reported a 46 percent increase in revenue for the third quarter to $714 million. Net income was $85 million, up from $38 million in the third quarter of 2009.

Despite the generally strong vendor results this week, share prices fluctuated. Apple shares retreated from their record high of $318.00 Monday, trading at $308 Friday afternoon. Some of the sell-off was attributed to "profit taking" by investors who cashed out when Apple shares hit a new peak right before the earnings announcement. Concerns about component supplies also may have played a part.

Before its earnings announcement, IBM shares closed at $142.83, but were trading at $139.83 Friday afternoon. Though it raised its earnings guidance for the year, it was not a surprise since it was in line with what analysts were hoping for. Doubts about corporate IT spending may also be weighing on IBM and other corporate tech vendors.

The macroeconomic picture, with U.S. concerns focusing on the mortgage foreclosure and jobless rates, may also be contributing to volatility on the markets. Despite the generally positive vendor results this week, the tech-heavy Nasdaq Friday afternoon struggled to regain its opening level of the week. An hour before market close, the Nasdaq was up 15.81 points for the day, at 2475, about 5 points shy of its Monday close.

Still, in fits and starts, computer shares have been advancing since the beginning of September. Computer companies on the Nasdaq closed Thursday up by 8.58 percent for the year while telecom stocks edged into positive territory, up 0.67 percent for the year. If the sales outlook from tech bellwethers holds up, the last quarter of the year could be strong, both for earnings and share prices.

Copyright © 2010 IDG Communications, Inc.

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