Wall Street Beat: Google stirs market optimism

The spotlight is on earnings as Apple, Yahoo, IBM, Microsoft, AT&T, Nokia, EMC, Intel and AMD are due to report

Google's surprisingly strong earnings helped spark renewed confidence in the tech sector in advance of a raft of vendor earnings announcements next week, as shares of bellwether IT companies led markets upward Friday.

Concerns about U.S. unemployment, the political impasse over the federal deficit, and sovereign debt in a number of European countries have overshadowed corporate earnings in the past few months. Even though bellwether tech companies have made impressive sales gains this year, their shares have been battered on the markets as economic worries have caused analysts and shareholders to question IT spending trends.

After the market closed Thursday, Google said that for the second quarter, revenue grew 32 percent year on year to US$9.03 billion. Excluding fees and commissions, net revenue was $6.92 billion, exceeding the $6.55 billion consensus forecast from analysts polled by Thomson Financial. Google's profit was $2.51 billion, up from $1.84 billion a year earlier.

Analysts have wondered whether Google could maintain its growth as it expands and faces mounting costs trying to branch out from its core strength in search ad sales. The results seemed to assuage fears for the moment.

"We believe the accelerating growth, particularly in the Google sites segment, and the rising net revenue per employee, even in the face of accelerated hiring, are clear indicators of the company's trajectory, and ultimately, the stock," said Canaccord Genuity analyst Heath Terry in a research note.

Google's strong report seemed to put the focus back on earnings, right before a week in which some of the biggest names in tech, including Apple, Yahoo, IBM, Microsoft, AT&T, Nokia, EMC, Intel and AMD are due to report their own results.

Shares of many of those companies climbed Friday as the tech-heavy Nasdaq closed up by 27.13 points at 2,789.80. The Dow Industrials closed up by 42.61, to 12,479.73, and the S&P 500 closed up by 7.27 to 1,316.14.

After getting battered by economic worries in May and for most of June, computer stocks fell below the year's opening levels. Although an end-of-the-quarter rally helped get July off to a strong start, the markets have nevertheless been on a roller-coaster ride.

But with this week's surge, helped along by Google, computer stocks on the Nasdaq are now up by more than 2 percent for the year. The tech/media/telecom sector of the New York Stock Exchange is also up by about 2 percent for the year.

On Friday, IT bellwethers led the market up. Microsoft closed up by $0.31 to $26.78; IBM closed up by $1.31 to $175.54; Amazon was up $2.49 to $212.87; and Google was up $68.68 to $597.62. Even some of the chip and hardware stocks rose: Intel gained $0.10 to hit $22.37 and Dell rose $0.28 to $16.97.

Weakness in consumer spending has hit the hardware sector, raising concerns about uptake of new PCs. Strong spending on PCs last year, in the wake of the recession, also makes year-to-year increases more difficult to achieve than usual, IDC noted.

But after a year-on-year decline in the first quarter, PC shipments came back to increase by 2.6 percent, year over year, in the second quarter, according to an IDC report this week. Total PC shipments in the second quarter were 84.4 million, IDC said.

"These preliminary results continue to reflect pressure from competing consumer and business products as well as cautious spending," said Jay Chou, senior research analyst, in IDC's Worldwide Quarterly PC Tracker. "Nevertheless, product refreshes and promotions in the second half of the year as well as easier year-ago data should boost growth in the second half of the year."

Though economic worries will likely shadow IT throughout the year, the wave of tech vendor results due next week should shine a light on how actual sales have been doing.

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Marc Ferranti

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