Poor tech earnings may rattle investors
Print Edition
DISAPPOINTING results from Google Inc and IBM may unnerve investors shaken by a strong recent selloff in tech stocks, underscoring the challenges the Internet and IT sectors face as corporate report cards come due in coming weeks.
The two companies, both barometers of their respective industries, posted March-quarter results on Wednesday that missed Wall Street’s revenue targets.
IBM blamed weak hardware sales for its lowest quarterly revenue in five years, worsened by an 11 percent slide in overall sales in emerging markets including China, Brazil, Russia and India.
That spells trouble for other tech companies reliant on enterprise spending, such as Oracle, Cisco, EMC and Hewlett-Packard, which report results this month or next. Like IBM, they have struggled to grow their businesses, particularly in China, whose economy is slowing after years of hyper-growth.
Enterprise spending in general has been on the wane for traditional computing giants as corporations and even governments increasingly turn to software-as-a-service (SaaS) and other cloud offerings instead of maintaining their own in-house technology infrastructure. Many, including IBM and Oracle, have been left behind by smaller, younger rivals as spending goes toward emerging areas like big data, cloud and cyber security.
“We’re seeing a lot of traditional technology vendors struggle,” said FBR analyst Dan Ives.
“You’re seeing spending go away from big-bang projects toward smaller, more modular types of deployments, which speaks to why a lot of SaaS players are doing well. Customers want to buy just the drink rather than the whole bar.”
Google’s and IBM’s poor results on Wednesday may do little to change investors’ sentiment following a recent drop in tech stocks. Since early March, the tech-heavy Nasdaq index has fallen over 6 percent.
With the latest results factored in, including IBM and Google, tech earnings growth estimates for the quarter have fallen by roughly two-thirds since the start of the year, according to Thomson Reuters data.
(Reuters)
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