Tech vendor results this week reinforced the perception that business spending would fuel IT sales this year, and helped indexes head for a third straight week of gains.
While IT spending by large corporations is expected to boost the coffers of vendors selling enterprise technology this year, technology companies in several sectors this week reported strong sales to small and medium-size businesses (SMBs). This is a welcome sign, since there are many more SMBs than larger enterprises and a healthy recovery for the economy in general also depends on broad-based business strength.
Dell was one of the market stars of the week, reporting numbers that blew away expectations. The company Tuesday reported a whopping 177 percent year-over-year increase, to US$927 million, in net income for its fourth quarter of 2011. Sales to SMBs rose 12 percent year over year, to $3.7 billion. Sales to large enterprises also increased 12 percent, to $4.7 billion.
There were some shadows in the report, however. Sales to consumers slumped and revenue, at $15.69 billion, showed a much smaller increase -- 5 percent year over year -- than profit and fell short of the $15.71 billion forecast by analysts polled by Thomson Reuters. Also, part of the jump in income was due to lower component costs, which Dell has said may not continue over the year. The company's forecast for operating income for the current fiscal year, excluding one-time charges, was for an increase of 6 percent to 12 percent, a lower increase than it has experienced recently.
Nevertheless, the market immediately rewarded the company, driving up shares by $1.65 to $15.56 on Wednesday. Traditionally, Dell has been a company that has enjoyed a pop in value share when it beats expectations, said John Scherr, president of whispernumber.com, a company that tracks market reaction to data it collects on earnings expectations for a wide variety of companies. The "whisper" -- the average expectation of people reported to whispernumber.com -- was for earnings per share of $0.35, $0.02 below that of analysts polled by Thomson Reuters. Dell blew away all expectations, with EPS of $0.48, or $0.53 excluding one-time charges.
"Keep in mind that trading on whispers is a technical play on market psychology, rather than a bet on a company's fundamental strengths," Scherr said.
Dell has been struggling for a turnaround after several years of building up services and offerings for larger customers, so it will need several more quarters of strength to convince long-term observers that it is indeed on a growth path.
Other vendors focused on business technology turned in healthy results this week. Point of sale (POS) system maker Radiant, for example, reported a 16 percent year-over-year jump in fourth quarter revenue, to $90.6 million. Net income for the period was $6 million, up $23 million from its $14 million loss during the year-earlier period, and well above expectations.
PC Mall, an IT consultancy and integrator, reported record fourth-quarter sales of $425 million, up 26 percent from the year-earlier period. Net income was $3.9 million compared to only $100,000 a year earlier. PC Mall, like Dell, highlighted SMB results, reporting that sales to small and medium-size companies increased a healthy 49 percent, to $162 million.
Sapient, a consulting and IT services company focusing on financial, government and marketing businesses , reported a year-over-year jump of 22 percent in quarterly revenue, to $232.5 million. Income fell to $15.7 million from $70.1 million in the same period a year earlier. However, the year-earlier figure was boosted by a large tax benefit.
At midday Friday, major indexes were heading into the third week of gains, with the tech-heavy Nasdaq at 2839, up 7.80, the Dow at 12368, up by 49.95, and the S&P 500 at 1343, up by 3.25. Going in to the long U.S. weekend -- Monday is the Presidents' Day holiday -- all the major U.S. indexes are up for the year, and tech vendor results have a lot to do with that. Computer companies on the Nasdaq closed Thursday up by 7.74 percent since the beginning of the year, and up 31 percent since a year ago.
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.