Wall Street Beat: Enterprise IT, smartphones boost tech earnings

Third-quarter earnings reports from major tech vendors continued to pour in this week, confirming upbeat trends for enterprise software and emerging markets but mixed results for hardware and components.

News from the PC component arena turned more positive toward the end of the week as Advanced Micro Devices on Thursday said its profit for the quarter ending in September came out to US$97 million, a big turnaround from a year-earlier quarterly loss of $118 million.

AMD said revenue rose 4 percent to $1.69 billion. Growth in emerging markets including China balanced out flagging demand in the U.S. and Europe as well as manufacturing problems with GlobalFoundries that disrupted AMD's supply chain.

AMD said it expects revenue for the current quarter to increase sequentially by about 3 percent, equal to or greater than expectations of analysts polled by Thomson Reuters.

On Tuesday, ARM, which designs chips for the booming smartphone and tablet markets, said that quarterly sales increased 22 percent to $192 million while profit jumped by a whopping 44 percent to $55.8 million. ARM is attracting new manufacturing customers as end-user demand for mobile devices grows.

"In the third quarter of 2011, we saw a continued high level of design activity with many new customers licensing ARM technology for the first time, driven by end market requirements for smarter, low-power chips," said CEO Warren East.

In what could be seen as a vote of confidence for the flagging, low-margin hardware market, Hewlett-Packard Thursday said it has reversed course on ex-CEO Leo Apotheker's decision to explore a spinoff of its giant PC arm.

The idea to spin off the business was part of an effort to focus on high profit-margin products and services. But ultimately it appeared that HP listened to customers who like the idea of buying hardware and software from one company, and decided that PCs offer a way to sell higher-margin offerings to corporations. In addition, the $40 billion business gives HP the sort of heft that allows it to buy parts in bulk and get a cost advantage over competitors.

Results from some chip companies this week, however, highlighted sectors where component demand is soft. Texas Instruments, which makes chips for the communications, automobile and wireless industries, said quarterly sales dropped 7 percent year over year to $3.5 billion while profit declined 30 percent to $601 million.

Results for the company, which completed the purchase of National Semiconductor during the quarter, were greater than expected, noted CEO Rich Templeton in a statement, adding, however, that "economic uncertainty continues to weigh on demand in almost every major market segment in which we operate."

The most optimistic vendor financial news of the week, as usual, came from the enterprise arena. SAP reported Wednesday a 14 percent year-over-year rise in total revenue for the third quarter, to €3.41 billion (US$4.6 billion), while software sales jumped 28 percent to €841 million. Net profit skyrocketed 150 percent to €1.25 billion ($1.74 billion) as the reduction of provisions for copyright litigation with Oracle added €454 million to the figure.

SAP said it was winning business in head-to-head competition with Oracle, and benefiting from corporate spending trends that focus on innovation and growth.

Enterprise software vendor Citrix Systems also turned in a strong quarter, reporting a 20 percent year-over-year jump in sales to $565 million, and net income of $92 million, up from $88 million for the third quarter of 2010.

"We have strong positions across SaaS and collaboration, virtualization and desktop, networking and cloud platform markets," CEO Mark Templeton said in a statement.

Other tech earnings highlights of the week included results from mobile and consumer electronics companies, including:

-- Samsung, which Friday reported that total quarterly profit declined 23 percent from a year earlier to 3.44 trillion Korean won (US$3.1 billion). [The results were dampened by the chip and display operations business, but the good news was that profit at the increasingly important mobile unit more than doubled year over year. Samsung is now the premier vendor of smartphones, shipping about 28 million smartphones in the third quarter, up from about 20 million last quarter and passing Apple's iPhone shipments, according to Strategy Analytics.

-- Motorola Mobility, which Thursday reported a third-quarter net loss of $32 million, on an 11 percent increase in revenue, to $3.26 billion. The loss was narrower, by $2 million, than last year's third quarter loss. A 9.1 percent increase in smartphone sales helped, though sales of the Xoom tablet, which amounted to 100,00 units in the quarter, were somewhat disappointing. If regulators approve, the business will be absorbed by Google as early as next quarter. The deal is controversial, as market insiders speculate that it will drive other manufacturers, suspecting that Motorola will get a leg up on Android advances, away from that mobile OS toward Windows.

The IT earnings news came against a backdrop of positive economic developments. On Thursday it appeared that European banks had accepted a deal for a 50 percent cut in Greek debt, reducing the possibility of the country's default. A national default would have consequences on the economy that could dampen tech spending. In the U.S., gross domestic product figures from government Thursday showed a 2.5 percent growth, the strongest in a year.

"That the economy could muster any speed-up at all in the face of increased financial market headwinds and plunging consumer confidence readings is a reassuring sign," said Credit Suisse Chief Economist Neal Soss in a research note.

The generally strong earnings news for corporate IT vendors combined with the positive economic news helped push Nasdaq computer company shares up Thursday by several percentage points, and they closed up by 6.86 percent in aggregate for the year. Friday morning, however, shares slipped, most likely as some investors decided to take the opportunity to cash out while the market was in an upbeat mood.

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