Chip-maker Intel – a company whose performance is regarded as a lead indicator for the IT industry as a whole – charged ahead with an 875% net income explosion in its fourth quarter. This figure is made all the more impressive by the fact that Intel had to pay $1.25 billion to pay rival AMD to settle a legal dispute. Overall revenue for the period was up 28% to $10.6 billion.
This return to form was powered mainly by demand for consumer devices such as netbooks and laptops, specifically in the Asia-Pacific markets. “The demand picture in the quarter reflected broad-based strength across all regions and all product categories, with notebooks leading the way,” said Intel chief executive Paul Otellini. He explained that demand for servers during the quarter had been “strong”, although at $2 billion, its data centre unit’s contribution to overall sales was small.
Hefty consumer demand coupled with modest enterprise sales also characterised Microsoft’s second-quarter results. The software giant recorded a 14% jump in revenues to over $19 billion and a 60% rise in net income to $6.7 billion. This result is mainly explained by the release of operating system Windows 7, which alone accounted for $6.9 billion worth of sales. The vendor’s Enterprise Services division in fact showed a slight decline in revenues to $4.7 billion, while Server and Tools crept up to $3.8 billion.
Microsoft chief financial officer Peter Klein said, “While consumer demand remains healthy, we have not seen a return of enterprise spending growth.” He added that the company was “incrementally positive” towards the server and PC hardware sectors, and expects business IT spending to improve in the coming year.
After a year to forget, Cisco came back from the dead in its second quarter, marking the end of a four-quarter rally of tumbling revenues. In contrast to both Intel and Microsoft, the networking equipment maker’s enterprise division made a significant contribution to the company’s 8% revenue growth to $9.8 billion.
Cisco CEO John Chambers, who proved to be one of the most optimistic of IT industry leaders through the downturn, was now cautious on the extent of recovery. “While we believe that the recovery is now occurring, no- one knows for sure how strong it will be [or] how long it will last,” he said.
Delayed Effect
The above companies were among the first to be hit by the global recession. IT giant IBM, meanwhile, enjoyed a few quarters’ grace before the rot set in. Now, however, it continues to suffer – at least on the sales front.
In its fourth quarter for 2009, Big Blue’s revenues remained flat showing just 0.8% growth at $27.2 billion, which reflected a slump in systems and consultancy sales. Were it not blessed by favourable currency exchange fluctuations, the company would have suffered a 5% revenue dip. Still, IBM insists that an upturn in fortunes is on the way, but that “elongated deal cycles” have pushed a number of blockbuster contracts into the next quarter.
Cost cutting to the tune of $3.7 billion was a major contributor in net income being pushed up 9% to $4.8 billion. In January 2009, IBM implemented about 5,000 employee redundancies. “These actions are reducing our fixed cost base and improving the operational balance point,” said Mark Loughridge, IBM’s chief financial officer, in a conference call for analysts. “This will provide a real advantage as the spending environment improves with solid operating leverage off our now leaner cost base.”
Like IBM, information infrastructure vendor EMC’s overall revenues remained mostly static, rising just 2% to $4.1 billion, while net profit leapt to $426 million from $270 million a year earlier, when EMC made significant redundancies. The company also attributed some of its income upturn to virtualisation software vendor VMware, which it owns.
Enterprise application vendor SAP meanwhile, is one company for whom the economic recovery has yet to materialise. The application vendor posted a 15% decline year- on-year in software sales for the fourth quarter to 1.1 billion. Total revenues fell 9%, while net income for the fourth quarter was down 12% to 727 million. SAP stressed that the results were better than expected, although critics would argue that this was because previous dire performances set the bar so low.
Despite the dismal figures, the company’s then chief executive, Leo Apotheker, insisted that demand for its technology was strong. “People understand that in this kind of an environment, sooner or later, [they] have to do the right thing, and that is to invest in some software, because that is the best lever that you have in order to start rowing again,” he said. His optimism was undermined somewhat shortly after when his contract as SAP chief executive was terminated “by mutual consent”.
