Cisco Buys, IBM, Intel and Others Report

 

Cisco Systems Inc. plans to buy wireless equipment maker, Starent Networks Corp., while IBM Corp. and Intel Corp. reported strong third quarter results. In other earnings news, Advanced Micro Devices Inc. (AMD) and Unit 4 Agresso N.V. reported results that exceeded expectations.

Focal Points:

• Cisco announced a definitive agreement to acquire Starent Networks for approximately $2.9 billion. The deal is expected to close in the first half of 2010. The nine-year-old company is based in Tewksbury, Mass. and has approximately 1,000 employees worldwide. For the year ended Dec. 31, 2008, Starent reported revenues of $254.1 million, up 74 percent from the previous year. Starent is a leading supplier of IP-based mobile infrastructure solutions targeting mobile and converged carriers. According to the Cisco Visual Networking Index, global mobile data traffic is expected to more than double every year through 2013.
• IBM reported its third quarter fiscal 2009 results. Net revenues for the quarter were $23.6 billion, down 6.9 percent from the previous year's quarter. Net income for the quarter was $3.2 billion, an increase of 13.8 percent from $2.8 billion in the year-ago period. IBM Global Business Services had revenues of $4.3 billion, down 11.5 percent while its Global Technology Services unit posted sales of $9.4 billion, a drop of 4.4 percent. Software Group raked in $5.1 billion in sales, down 2.6 per cent while Systems and Technology Group revenues declined by 11.6 percent to $3.9 billion. Power Systems sales fell 10 percent while System z revenues dropped 26 percent. System x sales gained one percent while storage revenues declined by 13 percent. IBM claimed that even though hardware revenues declined in most areas, the units (except for the mainframe) had gained market share. IBM also raised its outlook for the fourth quarter.
• Intel announced its third quarter 2009 results. Net revenues for the quarter were $9.4 billion, down eight percent from $10.2 billion in the year-ago quarter. Earnings on a GAAP basis were $1.9 billion, a drop of eight percent from the $2.1 billion in the previous year's quarter. Its Mobility, Digital Enterprise and Atom units all saw double-digit revenue increases over the second quarter. On the other hand, AMD posted a loss of $128 million, which was less than expected, on revenues of $1.4 billion. This was a 22 percent drop in revenues from the previous year but also an 18 percent increase from the last quarter. In other news, Unit 4 Agresso, a mid-market ERP software provider, delivered revenues of €90.1 million, a six percent decrease from the previous year's quarter. EBITDA rose by 13 percent.

Experton Group believes the IT sector has begun its rebound but improvements in this sector do not portend a strengthening of the economic climate globally across all sectors. Thus, corporations that are concerned with both the top and bottom lines will nonetheless be spending more on IT products and services with the expectation that the expenditures will result in overall lower general administrative expenses. IT executives should be prepared to demonstrate to corporate executives that all new capital expenditures and projects have a return on investment within the fiscal year (or worse case 18 months). Moreover, the return should be very strong just in case the benefits prove to be overstated or the expenses underestimated.