Wall Street beat: Oracle, RIM renew confidence in tech

Technology earnings reports lift markets across the board

Oracle and Research In Motion earnings, Hewlett-Packard's $US1.5 billion acquisition of security vendor ArcSight and good economic news this week helped boost excitement and investor confidence in the tech sector.

Technology companies led U.S. exchanges out of the recession, as strong sales and profit lifted share prices. IT vendors outpaced companies in other sectors in 2009 through April this year. As concerns about a possible double-dip recession rose, however, IT lost ground as other sectors held steady or gained.

Solid -- in some cases record -- earnings reports in July and early August from IT heavyweights including Microsoft, Google, Intel and IBM fired a short-lived rally in tech stocks, after which they went flat again.

This week, however, tech appears to have had a big hand in sparking confidence in American business. Oracle and RIM results, reported Thursday after the markets closed, are important because they are among the first major tech vendors to report sales for August.

Oracle offered up good news for industry watchers, reporting that revenue for the quarter ending 31 August increased 48 per cent to $US7.5 billion, while profit was up 20 per cent to $1.4 billion.

Excluding one-time items, earnings per share (EPS) were $US0.42. Both revenue and profit exceeded the expectations of analysts polled by Thomson Reuters, who had forecast revenue of $7.27 billion and EPS of $0.32.

"Our software business grew strongly in all regions with new license sales up 25 per cent," said Oracle President Safra Catz, in the company's earnings statement.

Market watchers consider new software licenses a key indicator of growth potential. Both Oracle CEO Larry Ellison and new co-President Mark Hurd stressed that the company is banking on bundled hardware and software to spur future growth and hinted at plans for the company's annual user convention next week.

"Next week at Oracle OpenWorld we will announce two new high-end systems that combine Sun hardware with Oracle software," said Hurd, in a statement.

HP's board forced Hurd to resign in August in the wake of a scandal involving his relationship with a female contractor and falsification of expense reports.

RIM results were also impressive. Revenue for the quarter ending 28 August was $US4.62 billion, up 31 per cent from a year earlier, while profit was $796.7 million, or $1.46 per share, compared with $475.6 million, or $0.83 per share, in the same quarter last year. Analysts had forecast EPS of $1.35 and revenue of $4.47 billion.

"We expect a continuation of this momentum in the third quarter as we extend the rollout of new products including the BlackBerry Torch into additional markets and benefit from heavy promotional activities and increasing customer demand as we head into the holiday buying season," said Jim Balsillie, RIM co-CEO.

Analysts are adjusting their forecasts accordingly. "We are increasing our FY11 Revenue/EPS estimates from $18.4 bln/$5.49 to $19.6 bln/$6.06 to adjust for a better than expected ship-in of new products," according to a report from Susquehanna Financial Group.

Earlier in the week, HP stirred up some excitement with its $US1.5 billion purchase of security vendor ArcSight. Bill Veghte, executive vice president of software and solutions at HP, sounded what has become a familiar theme recently as the biggest tech vendors grow even bigger through acquisitions, in efforts to provide customers with bundled hardware, software and services.

"The combination of HP and ArcSight will provide clients with the ability to fortify their applications, proactively monitor events, and respond to threats," Veghte said in a statement.

The acquisition is the second large purchase announced by HP this month. It is also buying storage vendor 3Par for $US2.35 billion, beating out Dell, which also bid for the company.

The excitement in tech was complemented by some encouraging news on the economy. The Labor Department Thursday said first-time claims for unemployment benefits fell to a two-month low last week to 450,000. Meanwhile another report Thursday showed that wholesale prices increased more than expected last month, which should ease fears about deflation -- typically considered a problematic economic situation marked by a drop in demand.

The good news spurred tech vendor share prices. Oracle shares rose by $US1.54 to $26.90 and RIM increased by $1.04 to $47.53 in late-morning trading Friday. The tech-heavy Nasdaq rose by 12.56 points to 2315, while the broader Dow rose by 21.7 to 10616.

The stock market has rallied recently, and tech stocks are stronger than they have been lately. Still, trading volume has been lower than usual, indicating that many investors are sitting on the sidelines, still worried about the economy. While computer stocks on the Nasdaq this week barely eased into positive territory for the year, they are still trailing companies in other sectors. The Nasdaq Computer index closed up by 0.09 per cent Thursday while the Nasdaq Composite was up by 1.5 per cent, and the Dow Composite was up by 2.77 per cent.

Tech companies may be suffering from concerns that forecasts made earlier this year were a bit too optimistic. When third-quarter results pour in next month, industry watchers will get a better fix on how the slow-growth economy has, in reality, affected IT sales.

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Marc Ferranti

IDG News Service
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