Wall Street Beat: Mixed news for tech puts dent in sector confidence

Nasdaq Computer index closes down for the week

Mixed news for hardware and some disappointing software vendor financial reports this week appeared to put a dent in confidence in the IT sector.

Gartner forecast yet more bad news for traditional PCs and laptops. It's been known for some time that smartphones, tablets and hybrid devices such as so-called "phablets" are putting a damper on PC sales. On Thursday, Gartner issued a forecast that calls for a 6.6 percent year-over-year decline in PC and laptop shipments in 2014.

What's more, the 276.7 million PCs shipped to retailers in 2014 will drop even further, to 263 million units, in 2015, Gartner said.

Gartner offered a silver lining, however. Adding smartphones, tablets and hybrids into the mix, worldwide combined shipments of devices is increasing at a faster rate this year than last year, it said.

Shipments of PCs, tablets, ultramobiles and mobile phones are projected to reach 2.5 billion units in 2014, a 6.9 percent increase from 2013, according to Gartner. That's a faster growth rate than the 4.8 percent for combined devices in 2013, Gartner said. Worldwide combined shipments of devices will further increase to 2.6 billion units in 2015, Gartner added.

Even this good news came with a note of caution, though. As the overall device market starts to saturate, pressure on margins will continue to increase, and vendors will have to look at different ways to cope with the ongoing issue of lower margins, Gartner said.

Meanwhile, though smartphone sales are booming, the rising tide is not lifting all boats in that market. BlackBerry continued to suffer in its latest fiscal quarter, announcing Friday that revenue plunged 64 percent year over year to $976 million. The company went from a $98 million profit a year earlier to a $423 million net loss.

The essential problem is that the company is not selling enough of its new phones. The company said it sold about 3.4 million BlackBerry smartphones to end users last quarter, compared to 6 million a year earlier.

Devices running on the BlackBerry 10 system are not selling as well as the company had hoped a year ago, though officials said cost controls were proceeding ahead of schedule, helping the company beat analyst expectations.

Excluding one-time items, the company reported a loss of $0.08 cents a share, while analysts polled by Thomson Reuters had forecast a loss of $0.55 a share. Nevertheless, company shares closed at $8.41 Friday, down by $0.64.

Overall, software is expected to drive IT spending growth this year. Software results this week were not uniformly bright, however.

Enterprise open source software vendor Red Hat said Thursday that revenue for its fiscal fourth was $400 million, an increase of 15 percent from the year ago quarter. Net income was $45 million, slightly higher than $43 million a year earlier.

"Continued strong demand for Red Hat's technology portfolio drove strong growth in our core platform and application development technologies during the fourth quarter," said CEO Jim Whitehurst, in a statement. "In addition, our cross-selling efforts resulted in early wins for our emerging technologies, which address top CIO priorities that are driving the evolution of enterprise computing."

However, the open-source software company said it expects revenue between $412 million and $415 million for its first quarter ending May, while analysts surveyed by Thomson Reuters forecast sales of $414.98 million, at the high end of that range. Red Hat shares closed at $52.20, down by $3.93.

Application development and management software company Progress Software also issued weak guidance after reporting Thursday that quarterly results declined from last year. Revenue from continuing operations declined 11 percent to $74.5 million from $83.7 million, while net income was $11.1 million compared to $31.1 million in the same quarter last year.

For the current quarter, the company forecast revenue in a range of $78 million to $80 million, and earnings per share in a range of $0.32 to $0.35. That compares to analysts' average estimate for $82 million in revenue and earnings per share of $0.35. Shares of Progress closed at $21.09, down by $0.56.

On the whole, shares of tech companies, along with the rest of the market, managed to close slightly higher for the day Friday, possibly buoyed by news that the U.S. gross domestic product grew at a 2.6 percent annual rate in the fourth quarter, according to the Commerce Department. That was higher than the agency's previous calculation of 2.4 percent growth.

But the mixed news for tech during the week took a toll. The Nasdaq Computer index closed Friday at 2,062, down from 2,105 a week earlier. The Nasdaq Computer index is still 29 percent higher than it was a year ago, but up to recently, it was tracking at more than 30 percent higher.

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Tags smartphonesBlackberryGartnertabletsbusiness issuesLinuxoperating systemssoftwareapplicationsfinancial resultsRed Hathardware systemsconsumer electronicslaptopsdesktop pcsProgress Software

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Marc Ferranti

IDG News Service
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