The spectacle of Hewlett-Packard replacing CEO Leo Apotheker, who had been in the job just a year, with former eBay chief Meg Whitman this week all but obscured solid earnings reports from a range of enterprise software vendors including Oracle, Tibco and Red Hat.
The earnings show that user demand for enterprise software has stayed strong, even though macro economic worries are keeping IT vendor share prices low compared to the start of the year.
Despite economic weakness in the U.S. and Central and Western Europe, data published from Forrester this week shows that global tech spending will grow by 11.5 percent this year to reach US$2.042 trillion. All product categories will have double-digit growth in 2011, with software heading the list at 11.9 percent growth, according to Forrester.
"The economic weakness that surfaced in July and August won't be enough to cause any slowing in tech growth until Q4 2011," said Andrew Bartels in ablog post accompanying the Forrester report. "While the risk of renewed recession has certainly increased, we think that the most likely scenario is very low but still positive economic growth. As a result, our U.S. tech market forecasts do not currently show a significant downturn."
In 2012, however, growth will slow in all categories to an overall 5.5 percent as weak economic growth in the U.S. and Europe makes business and governments in these regions more cautious in their tech buying.
Meanwhile, enterprise software vendors are doing well. Oracle on Tuesday said its first-quarter profit was $1.8 billion, up from $1.4 billion a year earlier, on sales of $8.4 billion, up from $7.5 billion.
New software sales increased 17 percent over the year-earlier period. The one sore spot was hardware: Sales for the hardware business, which Oracle acquired from Sun Microsystems last year, dropped 5 percent to $1 billion.
"In our opinion, Oracle's results were respectable, but not spectacular," said Richard Davis in a research note from Canaccord Genuity. "These results reflect good execution on the software front and macro headwinds on the more discretionary/longer payback period hardware side of the equation. The quarter also generally mirrors what we expect to hear this earnings season from other software companies: better than feared results, an after-hours and next day pop in the stock, and unless the numbers are spectacular, a gradual retracement of much of this relief rally trade. "
Other enterprise software vendors also issued upbeat results. Tibco, for example, reported net income that rose year over year to $23.5 million from $17.4 million. Excluding one-time items, Tibco generated $0.23 earnings per share, beating the $0.21 EPS estimate by analysts polled by Thomson Reuters. Revenue rose 24 percent to $229 million, $9 million higher than expectations.
"Markets will rise. Markets will fall. But some changes are unstoppable," said Tibco CEO Vivek Y. Ranadivé on the company earnings conference call, referring to growing requirements for businesses to use realtime software platforms. "If you're actually selling something that people want today, you are in pretty good shape."
Other software companies reporting quarterly earnings this week included:
-- Red Hat, reporting Thursday, said revenue was up 28 percent year over year to $281.3 million, while net income soared to $40 million from $23.7 million.
-- Adobe reported Tuesday that sales surpassed the $1 billion mark, hitting $1.01 billion from $990.3 million a year earlier. Net income declined to $195 million from $230 million, but Adobe shares got a boost after the earnings statement because the company forecast sales of $1.08 billion to $1.13 billion for the current quarter, exceeding the $1.07 billion expectations of analysts.
Computer companies closed Friday up for the day, with shares boosted by the strong earnings reports as well as talk that European Central Bank would add liquidity to deal with the region's sovereign debt crisis. Fears of economic slowdown have been exacerbated by concern that Greece would default on sovereign debt, dragging down financial institutions with exposure to the country's debt and further muddying the economic climate.
Nasdaq computer stocks closed up 1.12 percent on a day where all U.S. exchanges closed up. Oracle closed at $28.90, up by $0.56; Tibco closed at $23.37, up $1.40; Red Hat closed at $42.32, up by $0.83; and Adobe rose $0.57 to close at $24.88.
Not all IT vendors enjoyed an up day Friday. HP's CEO switch appeared to rattle investors. HP shares dropped $0.48 to $22.32, its lowest point in six years.
In addition, the day's gains did not make up for the market turmoil caused by economic worries earlier in the week. The Nasdaq, as well as the other major exchanges were down for the week. Nasdaq computer stocks are still down almost 3 percent for the year. Overall, despite the strong close Friday, stocks suffered their worst weekly decline since October 2008, when markets were reeling from the virtual collapse of Wall Street.
Though IT sales growth looks strong for the year, the markets show that industry insiders still appear nervous about how the overall economy will affect sales -- if not for this year, then next year.
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