Dollars Flow Back Into Tech Hardware - scholarship online 2011

By SPENCER E. ANTEAnd DON CLARK

Two of the world?s largest technology vendors surprised Wall Street by posting surging sales and profits in the first-quarter, and signaled brighter days ahead.

Bloomberg News

An IBM researcher works at a company lab in December. IBM saw sales rise 7.7% in the first quarter.

International Business Machines Corp. and Intel Corp. both saw a big boost in spending from businesses, especially on servers and machines used in corporate data centers.

IBM logged the highest revenue growth the company has seen in 10 years, adjusting for currency fluctuations. Its quarterly revenue rose 7.7%, as demand for a new mainframe computer lifted hardware sales 19%.

Intel had a strong quarter, including a 34% jump in profit and revenue growth of 25%. The company benefited from sales of chips used in server systems and other hardware for computer rooms, and revenue rose 32% in that business.

But Intel sales also rose 17% for chips used in personal computers, contradicting estimates by two market research firms last week and a perception that sales of Apple Inc.?s iPad are sapping demand for notebook machines.

?Notebooks are very good,? said Paul Otellini, Intel?s chief executive, in an interview. While there was some weakness in retail sales in the U.S. and Europe, he said, that shortfall was ?more than offset? by better-than-expected results from business and consumer customers in other emerging markets, which include China and Brazil.

Shares of Intel jumped 4.9% to $20.84 in late trading, while IBM shares fell 2.4% to $161.47.

Demand from enterprises was bolstered by comments by corporate technology chiefs, who said they are increasing their focus on mobile products and Web-based services.

Monte E. Ford, chief information officer of AMR Corp., parent of American Airlines, said most of the company?s tech spending has gone towards building services that help employees and customers, such as its wireless applications for smartphones and tablets.

?The consumer is dictating where we go and what we are doing,? said Mr. Ford, noting AMR?s overall budget was similar to last year.

Sales continue to surge for smartphones and gadgets from Apple Inc., which is expected to report a revenue leap of nearly 73% on Wednesday. Chips from Intel and disk drives from Seagate Technology?which Tuesday reported an 82% drop in quarterly earnings?haven?t been used much in such products.

Once you begin to move beyond basic background information, you begin to realize that there?s more to Top Business News than you may have first thought.

But sales of large computers, including the server systems that run websites and other corporate functions, are seeing solid demand as companies set up or expand online applications.

IBM?s first-quarter profit rose 10% to $2.86 billion as revenue reached $24.6 billion, up from $22.86 billion. While its services and software businesses increased, the company saw the biggest revenue growth in its hardware group.

The Armonk, N.Y., company said that its four growth initiatives?cloud computing, business analytics, emerging markets and infrastructure upgrades?continued to gain momentum. For example, the company said revenue in markets such as Brazil and India rose 18%. ?Our key growth plays had fantastic performance,? said IBM chief financial officer Mark Loughridge on a conference call.

Daniel Flax, chief information officer of TheStreet.com Inc., said the company is purchasing smartphones and tablet computers for its workers. For the first time it is also working with IBM Global Services, which will help build a wireless network for the company?s office.

?Our mobile efforts are seeing the biggest spend,? said Mr. Flax, noting the website publisher would raise its technology budget this year by around 5%.

But the tide is not lifting all boats equally. The business technology market is increasingly bifurcating into a set of leaders and laggards, with much of the revenue growth flowing to companies benefiting from mobile products and cloud computing.

Bucking concerns about its limited role in smartphones and tablets, Intel reported earnings for the quarter ended April 2 of $3.16 billion, up from $2.44 billion a year ago. Revenue rose to $12.85 billion from $10.3 billion.

Intel?s surprisingly strong results could fuel further debate about the health of the PC sector, and the potential impact of tablets on the industry. International Data Corp. last week said global PC shipments fell 3.2% in the first quarter, while Gartner Inc. reported a 1.1% drop; both firms previously had forecast slight growth for the quarter.

Intel?s Mr. Otellini said computer makers ordered heavily, timing their purchases to take advantage of new Intel chip models?and predicted companies would start upgrading their PCs to use the technology.

?We are still in the early phase of an enterprise upgrade cycle,? said Mr. Otellini, who predicted PC industry unit growth in ?low double-digit? percentages for all of 2011.

But some analysts see a more disruptive impact from tablets; Goldman Sachs estimated Tuesday that tablets could cannibalize 35% of PC sales in 2011, since many laptops are used mainly to consume content.

Write to Don Clark at don.clark@wsj.com

Printed in The Wall Street Journal, page B1

Source: http://aascholarships.info/2011-scholarships/dollars-flow-back-into-tech-hardware/

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