Wall Street Beat: Tech sales strong in third quarter

IDG News Service - Against a backdrop of economic uncertainty, a raft of third-quarter earnings reports this week from some of the biggest players in IT showed that while tech sales remain strong overall, there are some weak spots that are stirring concerns among market watchers.

IT buyers are acting cautiously in the face of economic turmoil, according to some market reports. The IT Monitor report produced by CDW this week said that 40% of IT decision makers surveyed expect an increase in their overall IT budgets in the next six months, down 8 percentage points year over year and the lowest level since October 2009.

As European leaders prepare to meet this weekend to complete a plan to deal with the sovereign debt crisis in Greece, and with the U.S. economy still crippled by fallout from the collapse of the real estate market, tech investors remain sensitive to any indication of a slowdown in IT sales, even as some vendors, like Microsoft, achieve record results. Even though vendors have so far reported a generally strong third quarter, computer stocks on the tech-heavy Nasdaq are up only about 2% for the year.

Microsoft results for the quarter ending Sept. 30, announced after the market closed Thursday, included a 7% year-over-year increase in revenue, to $17.37 billion, and a 6% increase in net income, to $5.74 billion. Even so, Microsoft shares did not get much of a boost, rising only $0.07 Friday morning to $27.11.

A tepid 2% year-over-year increase in Windows and Windows Live sales, to $4.87 billion, may scare company watchers. Corporate systems fared well, however. Sales for the company's Dynamics ERP business grew 17%, while the Server and Tools Division generated a 10% increase to $4.25 billion in revenue.

Apple shares declined immediately after its earnings announcement Tuesday, as sales of the iPhone disappointed. Though Apple reported selling a record number of iPads and Macs in the third quarter, it fell short of Wall Street expectations for the iPhone. At 17 million, iPhone sales were down 16% from the prior quarter, and below analyst estimates of 20 million to 22 million.

Sales for the quarter ending Sept. 30 were $28.3 billion, up 39% year over year, while net profit increased 54% to $6.6 billion. However, the company's earnings fell short of analyst expectations for the first time since 2004.

"Apple reported weaker than expected September quarter results, as iPhone sales were below our and consensus estimates. We believe iPhone sales slowed ahead of the iPhone 4S product launch," said Canaccord Genuity analyst T. Michael Walkley in a research note.

IBM started off the week Monday announcing increases in sales and profit, though revenue fell slightly short of analyst expectations. IBM, with its broad portfolio of corporate-focused products, is considered a better barometer of enterprise IT than Apple. Its miss on sales growth aroused speculation that worldwide economic turmoil might dampen the company's fortunes.