Wall Street Beat: Tech earnings boost optimism

Strong sales and forecasts help dispel gloom due to global economic uncertainty

By , IDG News Service |  Business

Though a pall of uncertainty still hangs over the global economy, a wave of tech vendor quarterly reports this week from bellwethers including Microsoft, IBM, Apple and AT&T have gone a long way to bolster confidence in a continued recovery for the IT sector.

Though in some cases, revenue increases did not quite live up to expectations -- indicating that the rebound in tech sales from the recession is slowing somewhat for some companies -- the overall picture that has emerged indicates a healthy quarter, with reasons to be optimistic for the rest of the year.

Company earnings reports this week have boosted share prices in a number of sectors, including tech, though exchanges are still significantly off their 52-week highs, set at the end of April, due to concerns about European sovereign debt crisis and sluggish growth in the U.S. jobs and housing markets. Despite the worries, tech company sales were strong for the just-ended quarter, causing market watchers to stay optimistic.

For example, Microsoft was under pressure to deliver a strong quarter, since burgeoning PC sales have raised expectations for strong related sales of historic cash-cow products such as the Windows OS and its Office suite. The company did not disappoint, reporting on Thursday record quarterly revenue for the three-month period ending in June, mainly due to OS and Office sales.

Microsoft's quarterly net income was US$4.52 billion, a 48 percent jump from the same period last year, on revenue of $16.04 billion, a 22 percent increase. Both revenue and earnings exceeded analyst expectations. The report was just one of the high points of the week.

"Financial markets in Q2 2010 have been shaken by fears that the Greek debt crisis will metastasize across the European Union (EU) and beyond," noted Forrester chief economist Andrew Bartels in a tech outlook report released Wednesday.

"Nevertheless, Q1 demand data was strong; we continue to expect that the tech recovery will gain strength in the US and around the world, though European IT market growth will be lower than our earlier predictions," Bartels said in the report.

U.S. IT goods and services spending will increase 9.9 percent in 2010 compared to last year, to $564 billion, Forrester predicts. That's more than the company's previous projection, in April, of 8.4 percent. Globally, IT spending will increase 7.8 percent to $1.58 trillion, Forrester said.

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