Wall Street excitement relieves doldrums

Rumors of telecommunications company mergers and earnings reports from IT heavyweights gave investors in technology companies, who appear to remain cautious, a lot to chew over this week.

Though in the first three weeks of the year bellwether companies including IBM, Apple Computer, Intel and Yahoo reported strong earnings that in some cases exceeded analysts' expectations, guarded vendor forecasts for the year appeared to have made investors skittish.

Trading in technology shares moved lower Monday, with the Nasdaq index sinking 25.57, or 1.3 percent, to close at 2008.70, as investors continued to act cautiously.

Midweek, however, confidence in technology companies appeared to be somewhat boosted, and the Nasdaq index started moving toward 2050, helped by some strong earnings reports and intriguing possibilities for telecom mergers.

On Wednesday, trading in Texas Instruments (TXN) shares rose by US$1.54 to US$22.66 after the company on Tuesday reported calendar fourth-quarter 2004 results that exceeded analysts' expectations. The company said inventory held by distributors appears close to being sold off, which was widely taken as a sign of user demand this year.

EMC also posted upbeat results Tuesday, reporting that 2004 fourth quarter profit jumped 46 percent on increased spending on data storage technology. The company reported a profit of US$320.5 million, or US$0.13 cents per share, compared with a profit of US$220.1 million, or US$.099 cents per share, in the year-earlier quarter. Revenue in period rose 27 percent to US$2.4 billion from US$1.9 billion a year earlier. Company (EMC) shares rose more than a dollar over the next several days to the US$2.90 level.

EMC results appeared to back a forecast last week by Chris Brown, manager of the Pax World Balanced Fund, who predicted strong growth in the storage sector. Though he remained cautious regarding the general technology sector, which many analysts now consider subject to the slower growth of mature markets, he forecast recovery in specific sectors such as volume data storage and security.

In another confidence booster in the software sector, Oracle Chairman and Chief Executive Officer Larry Ellison said Wednesday that, after its acquisition of PeopleSoft, it can offer a full range of high-end enterprise applications, and that it will able to exceed financial expectations for next year. The next day, company (ORCL) shares rose by US$0.35 to close at US$13.97.

On Thursday, telecom companies were being scrutinized as rumors emerged about an acquisition by SBC Communications of AT&T in a deal that would be worth more than US$15 billion. The merger would create the largest phone company in the U.S., though it would have to pass serious regulatory scrutiny. Trading in SBC (SBC) shares dropped by about a dollar Thursday, to close at US$23.67.

The news sparked other telecom rumors, which, propelled by analyst reports, spread through the market like wildfire. Several analysts speculated that an SBC deal would push competitors like Verizon into talks about acquiring MCI. Trading on Thursday nudged up MCI (MCIP) shares by US$0.65 to US$19.31.

Citing strong earnings across its businesses, including gaming, Microsoft after the market closed on Thursday reported record revenue for the December quarter that surpassed analyst forecasts. In expectation of strong results, trading in Microsoft shares (MSFT) rose by US$0.10 to US$26.1 earlier in the day.

Microsoft recorded revenue of US$10.82 billion for the quarter, up 7 percent from US$10.15 billion for the year-earlier period. Net income for the quarter was US$3.46 billion, up from US$1.55 billion.

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