Wall Street Beat: Tech bellwethers offer view into IT trends

HP, Oracle and Apple make moves that highlight industry shifts

Hewlett-Packard, Oracle and Apple sparked some of the biggest corporate financial news of the week, highlighting sector trends as IT edges toward what could be its best first quarter on the markets since the dot-com bust in 2000, despite some turbulence during the past few days.

HP, the biggest IT company in the world in terms of revenue in its last fiscal year, Apple, the most profitable tech vendor, and Oracle, the biggest database maker, are bellwethers whose financial results and corporate maneuverings are closely watched for portents of things to come.

Tech stocks in general have been riding a wave of investor confidence in the economy, as unemployment claims in the U.S. decline and housing market data shows the beginnings of a recovery. This week has been something of an anomaly however, as the tech-heavy Nasdaq, at 3,065.50 midafternoon on Friday, looked like it would close lower, or flat, compared to its 3078.32 close on Monday.

Data indicating a slowdown in the Chinese and European economies were blamed for market turbulence this week. Nevertheless, computer companies on the Nasdaq exchange closed Thursday up by 22.72 percent for the year, and with one trading week left to go in the quarter, the Nasdaq could end up at its highest point in about 12 years.

Oracle's quarterly report on Tuesday was an improvement over the prior quarter's and highlighted the importance of cloud computing.

Oracle said that for the three months ending Feb. 29, net income rose 18 percent year over year to US$2.5 billion, while revenue grew 3 percent to $9 billion. The results were better than analysts expected, according to a poll by Thomson Reuters, and growth rates for both sales and profit were slightly better than last quarter.

Highlighting the company's security features for cloud-based applications, CEO Larry Ellison said on the company's financial conference call that "the growing popularity of cloud computing gives us a great opportunity to replace SAP as the number-one applications company in the world."

Oracle has made cloud-oriented acquisitions including a $1.5 billion deal for CRM maker RightNow Technologies and a $1.9 billion deal for human-resources software vendor Taleo.

Despite the better-than-expected results, however, analysts did not completely buy the line about cloud computing.

"It's faux cloud, they've made some acquisitions to try to be cloud," said stock commentator Jim Cramer in a video interview for financial news site TheStreet.com.

Meanwhile, in a move that underlines declining profit margins on hardware, Hewlett-Packard Wednesday announced the merger of its Imaging and Printing Group and its Personal Systems Group into a new unit called the Printing and Personal Systems Group. Company officials said by streamlining costs, the move would drive profitable growth for the entire company.

Some analysts, however, doubted that great cost efficiencies or much greater profit margins would be achieved, since there are not many opportunities to cut costs in such low-margin businesses and it would be difficult to meld enterprise and consumer sales functions. HP's share price sank in the days after the announcement. Some company watchers speculated that the move could be a step toward spinning off both the printing and PC businesses.

Though CEO Meg Whitman recently quashed the plan to sell or spin off the PC business that her predecessor, Leo Apotheker, announced last year, the merger of the personal computer and printer businesses would be a good initial step toward a bigger spinoff, said analyst Jack Gold in a research note.

"I would argue that if HP is moving down this path, it is the right move for them to make (and if they're not they should be)," Gold said. "The real growth opportunity for HP and its shareholders is in services, software, and higher margin hardware (e.g., servers, cloud-based systems, networking, storage)."

Meanwhile, Apple CEO Tim Cook finally answered investor and shareholder calls to distribute dividends. On Monday he declared the company would tap its huge cash reserve of $98 billion to issue dividends and repurchase shares. Apple officials gave assurances that the company would have plenty of cash to spend to further develop its business and, among other things, Cook pointed to skyrocketing iPad sales as an indicator of its recent success, highlighting one of the more important hardware trends of the past year.

"We believe the tablet market will surpass the PC market in size. It's a matter of time," Cook said.

Apple shares have been trading at sky-high values, hitting a record $600 recently, though an odd glitch caused a halt in trading Friday morning. A single trade of 100 shares at a price of $542.80 from the BATS Exchange caused a momentary plunge in the value of Apple shares. Trading was halted, due to the so-called circuit-breaker rule that is invoked when great volatility hits a stock. The trade was apparently a glitch and Apple shares recovered to $597.25 by early afternoon trading.

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Marc Ferranti

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