International Business Machines Corp and Yahoo! Inc posted profit and sales that beat analysts' estimates, spurring optimism that other US technology companies reporting this month will follow suit.
Shares of IBM, the world's largest provider of computer services, and Yahoo, owner of the No. 2 US Internet search engine, rose in extended trading after the results. IBM said demand for computer services and software helped drive a 12 percent rise in net income. Sales of online advertising helped Yahoo produce a fivefold profit climb.
"They are a powerful, positive statement on the state of tech" and spending on information technology, or IT, said Rob Enderle, an analyst at the Enderle Group in San Jose, California.
"IBM is showcasing the fact that IT dollars are coming back."
Gains at IBM, the second-largest technology stock in the world behind Microsoft Corp, and Yahoo indicate that companies remain willing to spend on technology-related products, services and advertising. Intel Corp on Jan. 11 said sales this quarter may exceed analysts' estimates. The three are among the first to report earnings for the final quarter of 2004. Microsoft reports next week.
"I'm optimistic," said Rudy Grimm, who helps manage US$4 billion for Berkeley Capital Management in San Francisco. He owns semiconductor stocks such as Analog Devices Inc and Maxim Integrated Products Inc. "Capital spending looks pretty good, and technology companies are the primary beneficiary of that." Armonk, New York-based IBM late yesterday said net income rose to US$3.04 billion, or US$1.81 a share, from US$2.71 billion, or US$1.56, a year earlier.
That beat the average estimate of US$1.76 a share by 20 analysts polled by Thomson Financial.
Yahoo, based in Sunnyvale, California, said net income rose to US$372.5 million, or US$0.25 a share, from US$75 million, or US$0.5, a year earlier. Profit excluding gains from a sale of Google Inc shares was US$0.13, beating analysts' estimates of US$0.11.
"The numbers were reasonable, so the market should look favorably on this," said Jim Grossman, who owns IBM shares among the US$62 billion under management at Thrivent Financial in Appleton, Wisconsin.
Microsoft, the No. 1 software maker, reports its fiscal second-quarter results on Jan. 27. Microsoft is expected to report profit of US$0.33 a share, the average estimate of 26 analysts in a Thomson Financial survey, on sales of US$10.6 billion.
Intel, the largest maker of chips that power computers, said its sales exceeded US$9 billion for the first time in the fourth quarter and forecast first-quarter sales that topped analysts' estimates.
Some analysts weren't all that optimistic.
"It's going to be a choppy earnings season for the technology stocks," said James O'Mealia, the president of Sunnymeath Asset Management, based in Sea Bright, New Jersey. He has about US$25 million under management.
Motorola Inc, the second-largest mobile-phone maker, reported fourth-quarter earnings that beat estimates. The company also said sales and profit this quarter may fall short of expectations. Motorola shares fell US$0.53, or 3 percent, to US$16.90 in extended trading.
IBM's results might also be a sign of better-than-expected earnings from companies such as Symnatec Corp.