Wall Street Beat: As markets rise, guarded optimism for IT

Red Hat and BlackBerry report strong quarters, NAND memory did surprisingly well last quarter, and Gartner maintains its growth forecast

Though IT trailed other sectors as market indices rose to milestone highs this quarter, some bright spots in earnings and market research reports this week indicate continuing confidence that things will go better for tech this year than in 2012.

Trading was suspended Friday for the Good Friday holiday in the U.S. before the Easter weekend, but on Thursday the Standard and Poor's 500-stock Index rose 6.24 points to end the first quarter at 1,569.19, its highest point ever in nominal terms (not taking into account inflation). The prior high was in October 2007, before the recession. Three weeks ago the Dow Jones Industrial average broke its prior nominal high, also set in October 2007.

Though tech stocks are up for the year, they have not risen as fast as those in other sectors. The Nasdaq Computer Index, up 2.4 percent for the year, is the slowest-growing sector on the tech-heavy exchange. In comparison, Nasdaq industrials are up 11.85 percent and banks are up 11.18 percent.

In general, investors appear to be focusing on good U.S. economic news and shrugging off bad news elsewhere, such as the European plan to make bank depositors in Cyprus share the burden of bailing out the country's biggest banks.

"In 2011, a Cyprus hiccup would have taken the market down a lot. Today, the market yawns and keeps going," said Leon LaBrecque, founder of LJPR, an investment management firm, in email. "All we can say is that this quarter, it closed at record highs despite a lot of headwinds."

The U.S. Department of Commerce said this week that the gross domestic product increased in the fourth quarter of 2012 by 0.4 percent, up higher than prior estimates of 0.1 percent. The Commerce Department has also reported that employers have added about 200,000 jobs a month since November, bringing the unemployment rate to 7.7 percent by the end of February, a four-year low.

Though the good news has not sparked a big jump in tech stocks relative to other sectors, guarded optimism about IT prevails.

Worldwide IT spending is projected to total US$3.8 trillion in 2013, a 4.1 percent increase from 2012 spending, according to the latest forecast by Gartner. Some areas of tech will lag behind, however.

"The Nexus of Forces -- social, mobile, cloud and information -- are reshaping spending patterns across all of the IT sectors," said John Lovelock, research vice president at Gartner, in the report. "The ratio of this mix is changing dramatically and there are clear winners and losers over the next three to five years."

Gartner forecast worldwide devices spending (including PCs, tablets, mobile phones and printers) to increase 7.9 percent this year to $718 billion. The next fastest-growing category is enterprise software, forecast to increase 6.4 percent to $297 billion.

Red Hat, which provides corporate open-source software, reported strong earnings Wednesday. Total revenue for the quarter ending Feb. 28 was $348 million, an increase of 17 percent year over year. Net income was $43 million compared to $36 million a year earlier.

"We now provide solutions to over 90 percent of Fortune 500 companies," noted CEO Jim Whitehurst in a statement.

Meanwhile on the hardware front, smartphone and tablet sales sparked good news for related components. The global market for NAND flash memory pulled off a growth spurt during the last three months of 2012, causing sales to reach a record high, according to an IHS iSuppli report this week. NAND industry revenue in the fourth quarter of 2012 amounted to $5.6 billion, up 17 percent from $4.8 billion in the third quarter. Samsung Electronics, with more than a third of total revenue, led the sector.

Worldwide shipments of what IDC calls "smart connected devices" -- desktop PCs, notebook PCs, tablets and smartphones -- increased 29.1 percent year over year in 2012, exceeding 1 billion units shipped, with a value of $576.9 billion. The market expansion was largely driven by 78.4 percent year-over-year growth in tablet shipments, which surpassed 128 million in 2012, IDC said in a report this week. IDC expects that tablet shipments will surpass desktop PCs in 2013 and portable PCs in 2014.

BlackBerry, recently rebranded from its old name of Research In Motion, was buoyed by the smartphone wave, shipping about 1 million BlackBerry Z10 smartphones during its fiscal fourth quarter. The company reported earnings Thursday. Though revenue for the quarter, ending March 2, was down 36 percent year over year to US$2.7 billion, net income from continuing operations for the quarter was $94 million, compared to a net loss of $118 million during 2012.

The two new devices debuting during BlackBerry's quarter -- the touchscreen BlackBerry Z10 and a handset with a physical keyboard, the BlackBerry Q10 -- were designed essentially from scratch around a new platform based on QNX, a real-time operating system the company acquired in 2010. The company is counting on them to revive its aging product line.

"Given the expectations that most had, they did quite well," said analyst Jack Gold in email. "BB is certainly not dead yet and I think it's a mistake to count them out yet, even though they still face some significant hurdles to overcome."

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Tags business issuesSamsung Electronicshardware systemsComponentssoftwarefinancial resultsRed HatmemoryBlackberryGartnerIDC

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Marc Ferranti

IDG News Service
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