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26.01.2012

Technology Stocks on a Roll

IBM Corp., Microsoft Corp. and SAP AG reported strong financial results for the fourth quarter of 2011 while three major Indian outsourcers delivered mixed results. Meanwhile, Intel Corp. came through with another strong quarter, but its competitor Advanced Micro Devices Inc. (AMD) released weaker than expected results. 

Focal Points:

  • IBM delivered a solid earnings report for its fourth quarter and fiscal year 2011. Fourth quarter revenues were $29.5 billion, which was up two percent year-over-year, while net income for the quarter on a GAAP basis was $5.5 billion. For fiscal year 2011 IBM had revenues of $106.9 billion and a GAAP net income of $15.9 billion. Company executives state that the company is on target for delivering against its five year plan. IBM's services businesses saw three percent growth in the quarter year-over-year while the software group achieved a nine percent average growth rate in the quarter over the previous year's quarter. The WebSphere and Tivoli brands delivered double-digit sales growth while the information management unit had nine percent growth. Rational sales expanded by 4% and Lotus sales shrank by 3%. Hardware revenues dropped eight percent overall in the quarter with System z sales sagging by 31%. Power Systems grew 6% while storage and System x revenues declined slightly.
  • Microsoft reported record revenues for second quarter 2012. Total revenues for the quarter were $20.9 billion, a five percent increase from the previous year's quarter. Net income on a GAAP basis was $6.6 billion, which was essentially flat from the prior year's period. The Windows and Windows Live division, which saw sales slump six percent, was the only business unit that declined from the previous year. The Online Services division continues to bleed, although the loss for this quarter was $100 million less than the previous year's quarter. The Server and Tools division increased revenues by 11 percent year-over-year reflecting double-digit revenue growth in Windows Server and SQL Server premium editions.
  • SAP announced it had record quarterly sales for the fourth quarter. Total revenues for the quarter came in at €4.50 billion, a jump of 11 percent over the previous year's quarter. Operating profit was €1.67 billion, a quantum leap of 206 percent year-over-year. The company saw record fourth quarter 2011 software revenues grow by 16 percent. For fiscal year 2011 SAP had revenues of €14.23 billion, a gain of 14 percent. Full-year software revenues were 22 percent. SAP said sales of Hana, its in-memory appliance for real-time analytics exceeded its sales target by generating more than €160 million in revenues. Mobile contributed about €100 million in revenues for the quarter.
  • Intel reported strong fourth quarter revenues of $13.9 billion, up 21 percent from the previous year's quarter. Net income on a GAAP basis for the same period was $3.4 billion, an increase of six percent from the prior year's period. On a full year basis Intel reported revenues of $54 billion, a rise of 24 percent from the 2010 period. Net income on a GAAP basis for the year was $12.9 billion, a gain of 13 percent from the previous year. For the year PC Client and Data Center Group revenues both grew by 17 percent from the 2010 period. However, Atom microprocessor and chipset revenues slid by 25 percent from 2010. Meanwhile, AMD had fourth quarter revenues of $1.7 billion, which was up slightly from the previous year's quarter, and a loss on a GAAP basis of $177 million. The company was profitable in the quarter in 2010. For the full fiscal year 2011 AMD had revenues of $6.6 billion, up one percent from 2010. Net income on a GAAP basis for the year was $491 million, a 4% gain from previous year. 
  • Infosys Ltd. reported its third quarter 2012 revenues were $1.8 billion, up 14 percent year-over-year. Net income on an IFRS basis was $458 million, an increase of 15 percent. 41 percent of its contracts were fixed price while 59 percent were time and materials. The company delivered 25 percent of the work effort from its sites, with the rest being done offshore. Infosys experienced a 15.4 percent attrition rate. Tata Consulting Services Ltd. (TCS) reported its third quarter 2012 revenues were $2.6 billion, up 20.6 percent year-over-year. Net income on an IFRS basis was $568 million, an increase of 9.1 percent. 46 percent of its contracts were fixed price while 54 percent were time and materials. The company delivered 45 percent of the work effort from its sites, with the rest being done offshore or remote. Infosys experienced a 12.8 percent attrition rate. Meanwhile, Wipro Ltd. reported its third quarter 2012 revenues were $1.5 billion, up 12 percent year-over-year. Net income on an IFRS basis was $275 million, an increase of 10 percent. The company delivered 30 percent of the work effort from its sites, with the rest being done offshore. Infosys experienced a 15.8 percent attrition rate.

Experton Group believes the concern of a slowdown in the technology sector (as indicated by Oracle Corp.'s last financial report) has been abated by the strong performances of the other bellwether companies. SAP's record quarter clearly indicates that Oracle is experiencing problems with its new business model while SAP is gaining ground. Microsoft experienced mixed results partially due to a shift from the PC-centric user world to a post-PC era, dominated by Apple Inc. products. While the company continues to do quite well, it will need to create some new billion-dollar revenue solutions to pick up the slack in the Windows and Windows-related markets. While IBM did well overall, it did not run on all cylinders. The company remains a steady but not flashy performer. Intel outperformed expectations given all the hype about how iPads are supplanting PCs but its Atom unit disappointed. The Indian outsourcers continued to pick up steam, although a global economic slowdown in 2012 may slow their growth. Attrition rates remain high and should remind IT executives to factor churn into their contract negotiations. Overall, IT executives should expect the IT vendors to feel confident going into the year, which will not make them desperate to do deep discounts.