Corporate IT Spending Picks Up

Move to cloud computing bolsters revenue for IBM, Intel, Microsoft.

Corporate spending on computers and software gathered steam last quarter, bolstering sales and profit at Microsoft Corp., Intel Corp. and International Business Machines Corp.

Results from all three companies this week surpassed analysts’ predictions, with Microsoft saying yesterday that sales climbed to $17.4 billion in its fiscal fourth quarter. That topped the $17.2 billion average estimate of analysts. Intel’s revenue forecast for the current quarter, released a day earlier, also exceeded projections.

Companies are replacing aging desktop machines and equipping data centers to deliver computing over the Internet, via the so-called cloud. That’s fueling demand for new versions of Microsoft programs for businesses, more powerful chips from Intel and technology services provided by IBM. It’s also making up for sluggish PC buying from consumers in developed markets.

“What Intel said was the enterprise was strong, and that’s what you saw in the Microsoft numbers as well,” said Pat Becker Jr., a fund manager at Portland, Oregon-based Becker Capital Management Inc. His firm holds Intel and Microsoft shares among the $2.5 billion it has under management.

Net income in the fiscal period that ended in June rose 30 percent to $5.87 billion, or 69 cents a share, Redmond, Washington-based Microsoft said in a statement yesterday. That beat the 58-cent estimate of analysts surveyed by Bloomberg.

Microsoft was little changed in late trading yesterday after gaining 4 cents to $27.10 on the Nasdaq Stock Market. Intel, based in Santa Clara, California, slipped 18 cents to $22.81, while Armonk, New York-based IBM climbed $1.25 to $184.90 in New York Stock Exchange composite trading.


IBM’s Sales
IBM’s second-quarter revenue, reported July 18, topped predictions. Other technology companies also have benefited from increased spending by businesses. Google Inc., the biggest Web- search company, said last week that ad prices are up because companies are more willing to spend to market online.

Microsoft, the world’s largest software maker, said companies are snapping up copies of Windows 7, Office software, and programs tailored for servers -- the powerful machines that outfit data centers.

The company also benefited from lower taxes. Its rate fell to 7 percent last quarter from 25 percent a year earlier because more earnings were taxed at lower rates in Ireland, Singapore and Puerto Rico, Microsoft said in a statement.

The rate explains much of the reason why results surpassed predictions, Chief Financial Officer Peter Klein said in an interview.


‘Strong Close’
Unearned revenue -- which comes from multiyear contracts that isn’t recognized in the current period and indicates future sales -- was also higher than analysts projected. That figure was $17.1 billion, above the average estimate of $15.6 billion, according to Bloomberg data.

“It implies a strong close to the end of the quarter from a bookings perspective, and that’s going to flow into revenue in the next couple of quarters,” said Tony Ursillo, an analyst at Loomis Sayles & Co., which manages $162.3 billion, including Microsoft shares. “The flywheel has a lot of energy.”

Microsoft saw higher demand for Windows PCs for corporations than those for consumers, Klein said. That trend will continue through the fiscal year that started July 1 as companies continue replacing older machines, he said.

Sales in Microsoft’s business unit, mostly from Office software, rose 7.5 percent to $5.78 billion, compared with the $5.7 billion analysts predicted.


Consumers Favor Tablets
Sales to large corporations were strong in part because Microsoft representatives pushed to close deals before the end of the fiscal year, as is often the case, Klein said.

Sales in Microsoft’s server software unit rose 12 percent to $4.64 billion.

Windows revenue fell less than 1 percent to $4.74 billion, missing the $4.8 million average estimate of analysts. That was the third-straight quarter that the division missed estimates.

Consumer demand for Windows PCs was also crimped by economic weakness in some parts of the world, Klein said. Some households are also favoring tablets over PCs, he said. That’s taking a toll on netbooks -- the stripped-down laptops that had been popular during the recession.

“There are macroeconomic constraints on spending,” he said. “We see it as specifically acute in netbooks, which continue to drop roughly 40 percent. Certainly tablets are part of it.”



Bloomberg News



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