Strong results for tech companies, especially Google, and an easing of concerns about the US economy boosted confidence in the computer sector as markets closed last week on a positive note.
Companies as diverse as Google, SAP, Computer Services Inc (CSI) and Fairchild Semiconductor turned in positive earnings. Computer company stocks on the Nasdaq were up by 1.9% in aggregate Friday, as the exchange as a whole rose 47.61 points to close at 266.85. Google rose $32.69 to close at $591.68, leading the markets up.
Google's results point to its continued dominance in search, while CEO and co-founder Larry Page on a conference call highlighted the growth of the company's recently launched social networking site Google+, which he said now has 40 million members.
Google said it ended the quarter with revenue of $9.72 billion, up 33% year on year, and net income of $2.73 billion, up from $2.17 billion. Both sales and profit handily exceeded the forecasts of analysts.
While Google took the headlines, other companies confirmed some key trends, including rising sales for enterprise software and services.
ERP (enterprise resource planning) giant SAP, for example, said its third-quarter revenue rose 14% year on year, while operating profit more than doubled, helped by a revision of the sum reserved to settle litigation with Oracle over SAP's former TomorrowNow subsidiary. But even excluding the recalculation, third-quarter revenue rose 12% to €3.41 billion (£3 billion) and operating profit jumped 23% to €1.127 billion (£99 million). SAP shares on the New York Stock Exchange rose on Friday $1.49 to close at $57.66.
CSI also on Friday reported record revenue and net income for the August quarter, as sales rose 3.8% to $43.5 million and profit increased 3.4% to $6.4 million. It was the company's 29th quarter of sales growth.
There was even good news in the embattled semiconductor sector, as Fairchild Semiconductor earnings came in at $0.34 per share on revenue of $403.2 million, beating the expectations of analysts. Canaccord Genuity technology analyst Bobby Burleson noted the company should benefit from "normalising channel inventories in early 2012, following a brutal H2/11 that has distributors working down inventories to unsustainably low levels."
PC shipments increase
The hardware market is in general expanding more slowly than expected, according to both Gartner and IDC this week. In a research note, IDC said that worldwide PC shipments increased by 3.6% in the third quarter compared to the same quarter in 2010, up slightly from the 2.7% growth experienced in the second quarter but below August projections for 4.5% growth. The Americas and EMEA were slightly below expectations, IDC said.
"Most vendors continue to struggle with the slow market environment and product changes," said Loren Loverde, an IDC vice president, in a research release. "Although we don't see media tablets and other devices replacing PCs, questions on how products will evolve and consumer interest in these and other categories are providing a distraction."
Meanwhile, not all smartphone makers are reaping benefits from the exploding uptake of the devices. Sony Ericsson said last week an increase in the average selling price of its phones just barely offset a 9% fall in mobile phone shipments. It barely broke even in the third quarter, generating sales of €1.59 billion, compared to €1.6 billion a year earlier.
Software driving industry
Though the hardware sector is in turmoil, the software arena, especially enterprise applications, appears to be instilling an underlying confidence in tech. With Friday's gains, computer makers are up more than 4% for the year on the Nasdaq.
An easing of economic worries also helped fuel shares this week. French and German officials are putting the finishing touches on a plan to deal with the sovereign debt of Greece, and potentially Italy and Spain, in time for an EU meeting October 23. Meanwhile the US Commerce Department said that US retail sales rose 1.1% in September from a month earlier. Sales growth during August was revised upward to 0.3%.
While strong earnings for the software sector are expected through this earnings season, overall investor confidence will likely depend more on an optimistic resolution to the EU meeting.