Wall Street Beat: Earnings fail to spark confidence

Wall Street Beat: Earnings fail to spark confidence

IBM, Intel and AMD earnings and acquisition news from Oracle and Sun failed to calm IT traders

Earnings reports from IBM, Intel and Advanced Micro Devices and acquisition news from Oracle and Sun did nothing to calm IT investor fears about an uncertain US economy.

The tech-heavy Nasdaq Composite Index has gotten off to its slowest start in years. Even though the Nasdaq finished 2007 up by 9.8 per cent for the year, it has been sliding steadily in the past few weeks.

More analysts are starting to forecast a recession. US Federal Reserve Board Chairman Ben Bernanke, testifying Thursday before the House Budget Committee, warned that the risks of an economic downturn are growing. Though he said an economic stimulus package, including low interest rates, could help avoid recession, IT investors are clearly worried. After President George Bush endorsed some of Bernanke's comments about stimulus, a Friday morning market rally fizzled out by the end of the day.

IBM, which issued a preliminary earnings report Monday and its full results Thursday, had good news for its investors. IBM said that it would post $US28.9 billion in revenue for the 2007 quarter, a 10 per cent jump from the same period one year earlier. Fourth-quarter earnings are $2.80 per share, up 24 per cent and above analyst expectations. But the company said results were helped mainly by strong sales in Asia, Europe and emerging markets -- not the US

IBM shares rose $5.26 to close at $102.93 Monday when it issued its preliminary report, and sparked a temporary jump in tech stocks overall. But ultimately most technology companies did not fare well on the market this week.

AMD on Thursday reported a loss for the fourth quarter due mostly to charges connected to its acquisition of graphics chip maker ATI. AMD had a net loss of $1.8 billion and revenue of only $1.8 billion. Because the loss was smaller than expected, the beleaguered chip maker was rewarded in a down market Friday, when its shares rose by $0.70 to close at $7.04

Meanwhile, Intel Tuesday announced a revenue increase for the fourth quarter that fell short of analysts' estimates, in part due to weak prices for memory chips. The company said revenue was $10.7 billion, up 10.5 per cent, but missed the $10.8 billion estimated by analysts polled by Thomson Financial. Intel shares lost $2.81 Wednesday to close at $19.88, further declining during the rest of the week.

The Intel first-quarter revenue outlook is particularly disappointing, according to CitiGroup Capital Markets analyst Glen Yeung. Yeung expects a downward revision of the 2008 revenue outlook, because while Intel is benefiting from market share gains against AMD, the US economy is having a worse impact than expected.

Acquisitions did provide some excitement this week. Last week, Oracle announced a deal to buy BEA Systems for about $8.5 billion. Oracle shares gained $0.61 to close at $21.92 Wednesday on the news, flattening out over the rest of the week in the down market. The deal makes Oracle the biggest player in middleware, ahead of even IBM, pointed out JMP securities analyst Patrick Walravens in a research note.

Sun's $1 billion acquisition of MySQL, also announced Wednesday, was looked on favorably by traders as well. Sun is buying an open-source database used by some of the most widely trafficked Web sites in the world, such as Facebook and Google. Sun also said that next week it expects to report net income of $89 million for the quarter ending Dec. 31, compared to a loss of $56 million for the same period in 2006. Sun shares gained $0.55 Wednesday to close at $15.53, and rose slightly over the rest of the week even as most other stocks declined.

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