Wall Street Beat: IT leads market rally

Apple becomes the IT vendor with the biggest market cap while NetApp and Lenovo issue strong financials

Are shares of IT vendors set to rise again? Fueled by strong sales reports from Lenovo and NetApp, tech stocks led a broad market rally Thursday that was generally ascribed to news about China's confidence in Europe, which faces a debt crisis in Greece and other Mediterranean countries.

Despite good, even record-breaking quarterly sales reports from IT vendors over the past few months, worries about the economy have depressed tech shares lately. Even after the tech-heavy Nasdaq closed Thursday at 2277 -- up by 82 points or 3.7 percent for the day -- the exchange was 258 points off its 52-week high, set on April 26.

The European debt crisis has been at the heart of recent concerns about the ability of the world's economy to sustain the recovery from the Great Recession, but the U.S. economy is not considered to be out of the woods yet, either. The U.S. Labor Department Thursday reported that initial claims for unemployment dropped last week, but not to the extent that some economists had expected, and a Commerce Department report on the U.S. gross domestic product was not as positive as had been hoped for.

Still, the news that Chinese officials said they will hold on to the European debt they hold seemed to calm fears about the global economy, and positive reports from the IT sector gave an extra boost to tech shares.

Apple shares jumped US$9.24 to close at $253.35 Thursday, a day after the company earned the distinction of beating Microsoft out as the IT vendor with the highest market capitalization in the world: In other words, investors have more money in Apple shares than in any other technology company.

The investor confidence is a testament to Steve Jobs' direction of the company, which over the past decade has revolutionized the music market with the iPod, shaken up the mobile-phone sector with the iPhone and energized the tablet arena with the iPad.

Much has been made in the past two days of the fact that under Ballmer's stewardship, Microsoft has lost half its market share during the decade. The company remains a distant second to Google in the search market, is behind both Apple and Android-based devices in mobile-phone sales, and recently canceled plans for its Courier tablet device.

Ballmer's reaction to the Apple market cap news, as reported by the Wall Street Journal in India, was straightforward: Microsoft is more profitable. While that should assuage some investors, Apple's share price indicates the degree to which excitement in the IT arena revolves around consumer-oriented devices these days.

Nevertheless, vendors continue to report strong enterprise IT sales and helped to lead Thursday's market rally. Market leaders for the day included Intel, rising $1.06 to close at $21.76; Hewlett-Packard, jumping $1.22 to $46.94; and Oracle, up by $0.67 to $22.58. Microsoft benefitted from a FBR Capital report that upgraded the software giant's stock due to forecasts of strong enterprise spending on PCs this year. Microsoft shares rose by $0.99 to $26.00.

Storage and management software company NetApp rose $5.74, a whopping 17.7 percent gain, to close at $38.17, after reporting a strong quarter Wednesday. For the quarter ended April 30, NetApp revenue was $1.17 billion, compared to $880 million for the same period one year earlier, while net income rose to $145 million from $68 million.

"The server virtualization and cloud computing trends are driving significant business for us, as our competitive advantages in those areas lead more customers to choose NetApp storage efficiency solutions for larger and larger data center projects," said Tom Georgens, president and CEO, in the report.

China-based PC maker Lenovo reported Thursday that for the quarter ended March 31, it generated a profit of US$129 million on revenue of $16.6 billion, compared to a loss of $226 million on revenue of $14.9 billion a year earlier.

Lenovo's positive results came in the wake of several reports from Gartner that indicated the hardware market is in a strong recovery. Gartner on Wednesday said it expects global PC shipments to rise 22 percent this year to 376.6 million units. Spending on PCs will increase 12 percent to hit $245.4 billion, Gartner said in the report.

On Tuesday Gartner said that worldwide server revenue for the first quarter increased 6 percent from a year earlier, to $10.8 billion, while unit shipments jumped 23 percent to 2.1 million.

"We've seen a return to growth on a worldwide level," said Jeffrey Hewitt, research vice president at Gartner, in the report.

With European leaders setting aside funds to ease the financial crisis in Greece, Spain and Portugal, and major debt holders remaining steadfast, IT investors may calm down to the point where they can let the recovery in tech sales give them hope for the future.

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Marc Ferranti

IDG News Service
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