Wall Street Beat: Software, progress in euro zone plan help boost tech

Tibco and Red Hat say with the right products, sales are strong even in Europe

Tech stocks are ending the first half of the year on an upbeat note with news that enterprise spending on software lately has been relatively strong.

On Friday shares of computer companies led a U.S. market rally in the wake of reports that European nations are formulating a plan to create a single banking supervisor.

The tech-heavy Nasdaq soared by 2.89 percent Friday afternoon. Nasdaq computer stocks were up 3.32 percent in aggregate, as four of the five most active stocks on the exchange were tech companies. Qualcomm was up US$1.24 to $55.54, Microsoft rose $0.66 to $30.57 and Cisco jumped $0.56 to $17.04. Of the most active tech stocks, only Research In Motion declined, slumping $1.66 to $7.48.

The immediate reason for the market surge, which affected most sectors, was news coming from Europe about strides being made to resolve the crisis in the euro zone, caused by the debt crisis afflicting southern European nations, especially Spain and Greece. A plan reportedly being discussed in the E.U. would allow lenders to be recapitalized directly with bailout funds once Europe sets up a single banking supervisor. The plan also calls for the European Central Bank to have the ability to buy sovereign bonds in both the primary and the secondary markets. A growth package of €120 billion was also announced.

The plan, if it comes through, would help lift a pall over U.S. tech companies. Major U.S. tech vendors derive a significant portion of revenue from Europe.

Quarterly earnings reports from U.S. software companies have also helped inject some optimism into the tech market, however.

Last week, Oracle said that for the quarter ending May 31 net income rose year over year by 8 percent to $3.5 billion, while revenue increased by 1 percent to $10.9 billion. Red Hat said quarterly revenue was $314.7 million, up 19 percent year over year. Net income for the quarter was $37.5 million, compared with $32.5 million for the year-earlier period.

This week, Tibco followed with more good news for enterprise software, reporting Thursday that record second-quarter total revenue was $247.4 million, up 14 percent year over year and up 20 percent on a constant currency basis. Net income was $26.5 million compared to net income of $21.0 million a year earlier.

Though the European debt crisis weighs heavily on the tech market in general, enterprise software vendors that have been doing well of late say that with the right value proposition, tech companies can close deals.

On the company's conference call Thursday, Tibco CEO Vivek Ranadivé said that in Europe, "any volatility in this time should be sharply contrasted with 2008 and 2009. We do not see what was then a shutdown in spending. We do not see big deals drying up. In fact, companies are willing to fund large technology buys when the value is clearly demonstrable."

In an interview Friday, Ranadivé said, "I have been saying that it is the best of times and it is the worst of times. For others, it is the worst of times. For us and for our clients, I believe it is the best of times."

Tibco, a provider of infrastructure software for companies to use on-premise or in the cloud to capture and analyze information in real time, is in the sweet spot of the tech market right now, Ranadivé said. Corporations are becoming social networks in and of themselves as they interact via technology with customers, suppliers and partners, and along with this comes an explosion of data that needs to be analyzed in real time, according to Ranadivé.

In this scenario, Ranadivé said, "it's actually easier to justify a big deal than a small deal in the current environment because the big one can actually move the revenue needle on the company's performance."

In an interview this week, Jim Whitehurst, CEO of open-source infrastructure software vendor Red Hat, also said that software companies with the right offerings are able to ride out the current storm in the economy.

"Certainly, the economy's soft and choppy and continues to be. That's not necessarily a bad thing for Red Hat, though," Whitehurst said. "Our biggest out-performance relative to our plan came in southern Europe. You'd say, that's odd given that's the toughest economy, but we sell value. A lot of those were financial institutions, which are obviously heavily stressed right now. But those were companies who were saying, I have to save money, how do I save money, and our solutions generally do save money."

Despite some of the recent upbeat news in software, some companies are struggling, particularly on the hardware side of tech, where for example RIM is suffering from competition with Apple and Android-based devices.

Shares of RIM were trading down Friday after its Thursday earnings report, when it announced that revenue for the quarter ending in May was $2.8 billion, down from $4.9 billion a year earlier. The company also recorded a net loss of $518 million compared to a profit of $695 million a year earlier. A reorganization will delay an important upgrade to the BlackBerry operating system, the company said.

(Additional reporting by Chris Kanaracus in Boston.)

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