Wall Street Beat: Earnings, spending forecasts highlight tech sector strength

Economic uncertainty still casts a shadow on IT spending, however

Recent market research reports and earnings this week from tech bellwethers including Lenovo and Cisco Systems underscore underlying strength in IT even as the global economy continues to experience significant turbulence.

The highest-profile vendor to report earnings this week, Cisco, impressed market watchers by delivering earnings and sales growth. Cisco's financial results suffered last year, with critics claiming that an unfocused product strategy allowed mainly Asian manufacturers to undercut the U.S.-based networking giant by offering low-cost, solid-quality gear, especially in emerging markets.

Cisco promised to make cuts and refocus its product strategy, and its earnings report this week appears to show the moves are starting to work.

"Cisco's overhaul seems to be paying off as it posted better-than-expected Q2 earnings and increased its quarterly dividend," according to a research note from Canaccord Genuity.

Cisco reported that net sales for its second fiscal quarter were up 10.8 percent year over year to US$11.5 billion, while earnings rose 43.5 percent to $2.2 billion.

Cisco is counting on its virtualization and cloud strategies to expand its offerings in the market for data centers, CEO John Chambers said in a conference call.

On the hardware front, Lenovo -- since the third quarter of last year the world's number-two PC maker behind Hewlett-Packard -- said that for its third fiscal quarter, profit rose 54 percent year over year to $153 million, while revenue jumped 44 percent to $8.4 billion. The China-based company ascribed its success in the quarter to strength in its home market and efforts to expand in emerging economies such as Russia and India.

The strong earnings reports were accompanied by a spate of upbeat market research. Research and Markets reported Friday that its latest Business Monitor International United States Consumer Electronics Report estimates that U.S. PC hardware sales for 2011 was $144.1 billion, and that the compound average growth rate for the 2012-2016 period will be about 3.4 percent, a little higher than previous expectations as multimedia and entertainment notebooks remain buoyant.

"In 2011, sales of consumer electronics products such as smartphones and LED-backlit TV sets grew strongly as the recovery gathered traction," the report said.

Meanwhile, though declining to cite specific figures, the Semiconductor Industry Association said on Monday that the global semiconductor market is showing signs of healthy growth. The SIA expects a recovery in global demand after the March 2011 earthquake in Japan disrupted production and supply chains last year.

Figures from a recent survey of IT decision makers conducted by CDW IT Monitor appear to reinforce the sense of optimism. Overall, 80 percent of corporate IT decision-makers polled anticipate an increase in hardware spending in the next six months, an increase of five percentage points since October, CDW said. It added that software demand, as recorded in its survey, rebounded to reach record levels -- producing 10, eight and six percentage point increases in anticipated spending among small, medium and large-size businesses, respectively.

But IT is not out of the woods yet. Global economic growth is still uncertain, especially considering that Europe's financial troubles are far from over. There is still widespread concern that debt in countries like Greece and Italy could cause strain in financial markets that could dampen spending on IT.

"For most companies, this means that 2012 will require them to carefully balance between searching for new revenue with a focus on emerging markets while they preserve margins amid continued high volatility," according to a recent report from the Hackett Group. "Many companies are expecting as much as 25 percent volatility in key areas such as input prices, customer demand, and available talent. This has the potential to drive extreme swings in business projections, which IT must be able to accommodate."

In fact, earnings reports were not uniformly strong this week. For example, even though telecommunication equipment maker Alcatel-Lucent reported its first full-year net profit since the merger of Alcatel and Lucent Technologies in 2006, there were shadows in the report.

The Paris-based company reported a net profit of €1.1 billion (US$1.46 billion) in 2011, compared with a net loss of €334 million in 2010. For the fourth quarter, the company reported net profit of €868 million, compared to a net profit of €340 million a year earlier. However, the profit figure was due to a large degree to cost-cutting rather than sales growth. Revenue fell 12.9 percent year on year to €4.15 billion.

The company will have to boost sales in order to grow. This could be an uphill battle as telecom makers everywhere face a tough market, and the company's revenue in almost all its products fell during the quarter.

By the close of the market Thursday, Nasdaq telecom stocks were up 9.99 percent for the year and computer stocks were up 14.62 percent for the year. Last week, the Nasdaq closed at its highest level in more than 10 years. But Friday, five politicians resigned from the Greek government after European leaders demanded deeper spending cuts, sending markets in Europe and the U.S. into a tailspin. Friday afternoon, the Dow was down 127.53 to 12,762.56, the S&P 500 was down 23.36 to 2903.88 and the Nasdaq was down 11.59 to 1340.37.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.
Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Marc Ferranti

IDG News Service
Show Comments

Brand Post

Most Popular Reviews

Latest Articles


PCW Evaluation Team

Tom Pope

Dynabook Portégé X30L-G

Ultimately this laptop has achieved everything I would hope for in a laptop for work, while fitting that into a form factor and weight that is remarkable.

Tom Sellers


This smart laptop was enjoyable to use and great to work on – creating content was super simple.

Lolita Wang


It really doesn’t get more “gaming laptop” than this.

Jack Jeffries


As the Maserati or BMW of laptops, it would fit perfectly in the hands of a professional needing firepower under the hood, sophistication and class on the surface, and gaming prowess (sports mode if you will) in between.

Taylor Carr


The MSI PS63 is an amazing laptop and I would definitely consider buying one in the future.

Christopher Low

Brother RJ-4230B

This small mobile printer is exactly what I need for invoicing and other jobs such as sending fellow tradesman details or step-by-step instructions that I can easily print off from my phone or the Web.

Featured Content

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?