July 19, 2013, 6:15 PM — Though software sales provided a ray of light in otherwise mixed results this week, gloom settled over the tech sector Friday in the wake of bellwether IT quarterly earnings reports.
The broad Standard & Poor's 500 Index managed to close Friday at a record high of 1,692.09, but the tech-heavy Nasdaq dropped 23.66 points to 3,587.61, and the Dow Jones industrial average declined 4.65 points to 15,543.89. Of the five tech stocks on the Dow, only Intel traded up slightly, while Microsoft, IBM, Cisco Systems and Hewlett-Packard were down.
"Overall I'd say the earnings confirmed some common themes -- software is going to do better than hardware and services," said Forrester chief economist Andrew Bartels.
In Forrester's latest forecast for the global tech market, issued last week, Bartels lowered expectations for spending on IT goods and services to 2.3 percent growth measured in U.S. dollars, from the January estimate of 3.3 percent. Calculated in local currencies, the forecast looks better, at a 4.6 percent increase, but recession in Europe and slower growth in China is putting a damper on tech purchases by any measure.
IBM's earnings report on Wednesday was a good window into business tech spending and largely conformed to the big themes of the year, Bartels noted. IBM is considered a bellwether for the tech industry due to its geographic reach and giant portfolio of software, hardware and services. It is also the most heavily weighted stock on the Dow.
The company said second-quarter net income declined 17 percent from the year earlier to US$3.2 billion, while revenue dropped 3 percent to $24.9 billion. Though services and overall hardware sales declined during the second quarter, company officials stressed strength in software and big systems.
Software sales totaled $6.4 billion, an increase of 4 percent year over year. Middleware, including WebSphere, information management, Tivoli and Social Workforce Solutions (formerly Lotus), generated $4.3 billion in revenue, up 9 percent.
The company's Global Technology Services segment, however, suffered a 5 percent decline in revenue to $9.5 billion. Revenue for the Systems and Technology unit, which includes hardware products, was $3.8 billion, down 12 percent.
The big disappointment of the week was Microsoft, which Thursday said it took a whopping $900 million charge in the quarter to reflect unsold inventory of its Surface RT tablets. As the sagging PC market curbs sales of Windows, Microsoft is having trouble making headway in the booming markets for tablets and smartphones.