Wall Street: Earnings season winds down

Earnings season winds down this week with decent results from industry bellwethers and positive surveys of tech investors.

This quarter's earnings season is winding down after giving technology investors something of a roller coaster ride. The last few days have brought some heartening news however, with networking industry bellwether Cisco Systems and PC market leader Dell reporting solid quarters.

Earlier in the quarter, earnings results were mixed for industry leaders with, for example, Intel reporting positive results but Microsoft missing revenue targets.

More recently, on the wider economic front, oil prices dropped toward the end of this week and the U.S. trade deficit narrowed to a six-month low, according to a report Wednesday from the U.S. Commerce Department. Tech market surveys released so far this month also said some good things about corporate purchases and venture capital investments in certain sectors.

The Quarterly Venture Capital Report released by VentureOne and Ernst & Young, for example, said that there were 68 investments in communications companies during the first quarter, a two-year high. The CIO Magazine Tech Poll results for April, released last week, reported that the chief information officers (CIOs) who were surveyed predicted spending growth of 7.9 percent during the next 12 months, compared with the 6.4 percent growth predicted in March. The CIOs said corporate buying will focus on security, application software, infrastructure software, telecom equipment and data networking equipment.

On the PC front, Dell cited good sales outside of the U.S. for the first quarter and singled out growth in its storage and mobile product lines. First-quarter revenue was US$13.4 billion, an increase of 16 percent from the year-earlier period, and net income was US$934 million, up 28 percent. Revenue and earnings were in line with analyst expectations reported by Thomson First Call. Dell shares rose by US$0.07 to close at US$36.61 in advance of the announcement, which came Thursday after the market closed.

Dell set expectations high in April, when it announced plans to build up its relatively new IT services and printing units to help push yearly revenue to US$80 billion over the next few years. Thursday, the company forecast second-quarter revenue to be between US$13.6 billion and US$13.8 billion. It remains to be seen whether investors believe that's the type of growth path that will lead to Dell's heady forecasts.

Cisco's earnings report Tuesday, meanwhile, backed up the positive CIO predictions for networking gear. Citing strong sales in its service-provider equipment business, the company reported a more than 10 percent increase in revenue in its fiscal third quarter, from the same period last year. It said earnings per share, excluding certain one-time charges, came to US$0.23 per share, which beat analysts' consensus forecast of US$0.22. The report came after the market closed Tuesday. On Wednesday, Cisco shares (CSCO) rose by US$0.34 in reaction to the news to close at US$18.55.

Fiber-optic network operator Global Crossing Tuesday said first-quarter losses narrowed. The company said it lost US$107 million in this year's first quarter, compared to US$109 million last year. The better results were due to the fact that even though sales declined 21 percent, its costs fell by 33 percent. Though companies generally can not count on declining expenses as a long-term strategy, the company reported a steady increase in gross margins, which it will need to sustain a viable turnaround. The report was released in the morning, and company shares (GLBC) rose by US$0.58 to close at US$11.82.

In the Internet arena, Yahoo on Wednesday kicked the online music wars into a new phase with the launch of Yahoo Music Unlimited, a music subscription service initially priced at US$59.88 a year, or US$6.99 monthly. This undercuts pricing from rivals, and the market reacted immediately to the news. Yahoo (YHOO) shares closed US$0.82 cents higher for the day, at US$34.88. Meanwhile, Napster Inc. (NAPS) dropped US$1.70, to US$4.65, RealNetworks (RNWK) declined US$1.54, to US$5.76 and Apple Computer (AAPL) fell US$0.81 cents to US$35.61. The reaction suggests that any perceived weakness in the cutthroat online music market will be dealt with swiftly and severely, and also cast a pall on the sector. Analysts predicted that margins in online music distribution will end up being razor-thin.

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