Wall Street Beat: Tech Earnings, Forecasts Mixed

Vendor earnings and tech industry forecasts were mixed this week, shaking IT investor confidence even as worries about unemployment and European debt caused markets to slump.

Vendor earnings and tech industry forecasts were mixed this week, shaking IT investor confidence even as worries about unemployment and European debt caused markets to slump.

Hosted applications bellwether Salesforce.com on Wednesday reported a solid fiscal fourth quarter, ended Jan. 31. Company profit jumped to US$20.4 million from $13.8 million a year earlier, while revenue increased to $354 million from $289.6 million.

"As our full year results demonstrate, the movement to cloud computing is driving exceptional growth for Salesforce.com," trumpeted CEO Marc Benioff in the earnings report. He said the company continues to innovate, noting for example the addition of social-networking features to its applications via Salesforce Chatter software, released in a beta test last week.

But Salesforce shares tumbled on Thursday along with the rest of the market. Apparently what spooked investors, ever fearful of a slowdown in economic recovery, was the company's forecast for the current quarter. It expects to earn between $0.12 and $0.13 a share on revenue of $365 million to $367 million. That forecast was under the $0.18 a share on $355 million in sales estimated by analysts polled by Thomson Reuters. Salesforce shares closed Thursday at $68.01, down $1.43.

Palm shares were also hit after it reported Thursday morning that it expects third-quarter sales of $285 million to $310 million. The forecast falls short of the consensus analyst estimate of $425.4 million in revenue. Palm also said its sales for its 2010 fiscal year will be "well below" its prior forecast of $1.6 billion to $1.8 billion.

Palm shares closed Thursday at $6.53, down by $1.56. Palm is widely seen to be falling behind smartphone makers like Research in Motion and Apple, as well as vendors who are launching devices built on Google's Android mobile OS.

Meanwhile, Gartner's report on the server market for the end of last year contained mixed news. In the fourth quarter of 2009, worldwide server shipments grew 4.5 percent from the same period in 2008, to 2.2 million units, Gartner said in its report, released Wednesday. Revenue, however, fell 3.2 percent to $12.6 billion. The increase in unit shipments indicates a recovery of sorts, but Gartner was cautious in its analysis.

"The recovery that began in the third quarter of 2009 based on x86 servers extended into the fourth quarter," said Jeffrey Hewitt, research vice president at Gartner, in the report. "However, it is important to put this into context. The fourth quarter of 2008 was quite weak, so the fourth quarter of 2009 did not have to produce huge x86 server numbers to result in an increase."

In addition, budget-minded customers have tended to acquire lower-cost servers, constraining sales of higher-end servers. "RISC/Itanium Unix servers, on the other hand, dropped 30.5 percent in shipments and fell 20 percent in revenue in the fourth quarter," Hewitt said.

The market researcher was more bullish on the chip sector. An increase in sales of PCs will help fuel semiconductor revenue to $276 billion this year, up from $231 billion in 2009, Gartner said in a report Thursday. In contrast, global chip revenue declined 9.6 percent last year, Gartner noted.

The mixed tech-sector reports are not likely to ease concerns of investors who are also worried about general economic trends. Tech stocks reached 16-month highs in January, as major IT vendors like IBM, Intel, Apple and Google reported increases in sales. But markets have hit turbulence as general economic news suggests recovery from the Great Recession will be sluggish.

On Thursday, markets tumbled in response to a report of an unexpected rise in first-time claims for unemployment insurance in the U.S. In addition, the possibility of downgrades of Greece's debt raised concerns that financial troubles in Europe will spread to other frail economies, for example Spain and Portugal.

The tech-heavy Nasdaq closed Thursday at 2234, down by 1.68 points. That may not be a steep daily decline, but Nasdaq computer stocks are down 4.24 percent from the beginning of the year, while Nasdaq telecom shares are down 2.67 percent for the year.

Copyright © 2010 IDG Communications, Inc.

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