Wall Street Beat: Smartphone reports brighten up mixed results for tech

Vendor quarterly results are a mixed bag, as Cisco forecasts weak quarter

By , IDG News Service |  IT Management

A fresh round of quarterly results and market research this week show some shadows over the networking and component markets while smartphones, as usual, were the stars of the tech arena.

The biggest disappointment of the week came from Cisco Systems, which Wednesday reported a year-over-year decline in profit and sales and offered a gloomy forecast for the current quarter. For the three-month period ending in October, Cisco reported net income of US$2 billion, down 4.6 percent from a year earlier, while sales edged up by 1.8 percent to $12.1 billion. Company executives said they expect revenue this quarter to decline between 8 percent and 10 percent from a year earlier.

Several problems hit Cisco during the quarter, executives said. In emerging markets, sales declined. Concerns about surveillance in the wake of revelations about the U.S. National Security Agency may have had some impact on sales, particularly in China, company officials said.

Economic uncertainty as Europe still struggles with recession also played a part in the weak results, officials said. Part of the disappointing quarter, however, was due to Cisco's transition to a new line of carrier network equipment, which has put a damper on orders, company executives acknowledged.

Hosting company Rackspace reported that quarterly profit was $389 million, up a solid 16 percent year over year, but profit plummeted 40 percent to $16 million. The culprit for the decline in profit was increased capital expenditures, which company executives said were necessary to achieve a fast, global rollout of what it calls its "performance cloud."

Several analysts said the additional expenditures make sense. "We believe it is clear that additional investment is required to again stimulate growth in the newest segment of the business," said Canaccord Genuity analyst Greg Miller in a research note.

Applied Materials, often seen as a bellwether for the components market since it is a provider of chip-making equipment, announced that quarterly sales were fairly flat year over year, rising from $1.65 billion to $1.99 billion, while profit rose to $183 million from a loss the year earlier. The results appear to be positive especially since the company may be facing weakening demand for NAND components.

The global NAND flash memory market is decelerating in the second half of the year as demand diminishes for local data storage in smartphones and tablets, due in part to the rise of cloud-based services, according to a report from IHS. The market research company said that preliminary estimates show that total NAND shipments were estimated to have grown 8 percent in the third quarter, down from 9 percent in the second quarter.

For the fourth quarter, NAND shipments will expand by an even lower 5 percent, down sharply from the 16 percent rise seen in the fourth quarter of 2012, IHS said.

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