Wall Street Beat: Tech shares up as Internet stocks rise

The component forecast also looks good as smartphone sales boom

Tech stocks had an upbeat week as industry watchers appear to be looking at the positive side of earnings from Internet, consumer electronics and networking companies.

IT industry bellwethers have reported mixed results for the quarter ending in June. This week, earnings season continued with reports from LinkedIn, Yelp and Sony, among other companies.

Tech shares led markets to close up Friday, even though several indexes were down earlier in the day after a tepid report on the U.S. jobs market. The Labor Department said that although the unemployment rate fell last month to 7.4 percent, its lowest since 2008, the country added just 162,000 jobs in July, below the average monthly 202,000 this year.

The tech-heavy Nasdaq gained 0.36 percent to close up by 3.34 points at 15,658.36. The Nasdaq Computer Index rose 0.56 percent to 1735.89.

This week, professional social network LinkedIn was the tech star, announcing second quarter revenue of US$363.7 million, an increase of 59 percent year over year, while net income rose from $2.8 million to $3.7 million. LinkedIn membership grew to 238 million, rising 37 percent year-over-year.

LinkedIn shares spiked Friday afternoon by $22.58 to close at $235.58.

"Decisions made two years ago to re-write LinkedIn's code base have enabled rapid product innovation, which is driving much higher member engagement, creating a foundation that helped fuel tremendous self-service ad sales," said Canaccord Genuity analyst Michael Graham in a research note.

Online user business reviews site Yelp also came out with strong results, reporting that net revenue jumped 69 percent year over year to $55 million. The company's loss shrank to $878,000 from $2 million. The average number of unique visitors per month rose 38 percent year over year to approximately 108 million, while active local business accounts increased 62 percent year over year to approximately 51,400.

Yelp shares jumped Friday by $5.52 to close at $57.02.

Though LinkedIn and Yelp revenues are minuscule compared to Facebook's, their rising user statistics appeared to fuel the general good feeling toward Internet stocks. Last week, Facebook said mobile ad sales stoked revenue, which jumped 53 percent year over year to $1.81 billion, while profit totaled $333 million compared to a net loss a year earlier.

Facebook this week finally succeeded in clawing its way back to its May 2012 initial public offering price of $38, on Friday closing at $38.05.

Consumer electronics giant Sony, meanwhile, reported a profit, pushing forward with a turnaround that was sparked previously by a sale of assets including its U.S. headquarters and a Tokyo office complex. This quarter, improved results came from a combination of solid smartphone sales and a favorable foreign exchange rate.

The company reported that net profit was ¥3.5 billion (US$35 million) in the quarter, compared to losses of ¥24.6 billion in the same quarter last year, while revenue increased 13 percent to ¥1.7 trillion.

Sony's mobile products and communications business reported revenue of ¥389 billion, a 36 percent increase year over year, underscoring the importance of mobile communications to the future of just about any company in the consumer electronics business.

"Semiconductors for smartphones will see healthy revenue growth as demand for increased speeds and additional features continue to drive high-end smartphone demand in developed countries and low-cost smartphones in developing countries," said Nina Turner, research manager for semiconductors at IDC in a report this week. PC chip sales will remain weak, but as smartphone sales surge, semiconductor revenue worldwide will increase this year by 6.9 percent, reaching $320 billion, IDC said in the report.

Meanwhile, the wireless infrastructure segment of Alcatel-Lucent's business remained stable in the second quarter as the company continues efforts to focus on IP networking and ultra-broadband equipment. Revenue rose 1.9 percent to €3.61 million, driven by strong growth in sales of IP networking equipment, the company said. However, the company reported a net loss of €885 million (US$1.15 billion) for the quarter, weighed down by a charge of €552 million following a re-evaluation of assets, and restructuring charges of €194 million.

A strong week for tech stocks bodes well for confidence in the tech sector, as investors seem to be accentuating the positive aspects of what has been by most accounts a mixed quarter. But potential pitfalls remain.

Continued global macroeconomic uncertainty from a slowdown in China, the eurozone debt crisis and recession, Japan recession and the U.S. government spending cutbacks as a result of political compromise could all be factors weighing down IT, particularly spending that affects sales of components, IDC said in its report.

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Marc Ferranti

IDG News Service

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