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Tech giants defy slump as corporate customers drive sales

Strong quarterly results from three technology bellwethers suggest that corporate spending is holding up, despite an uncertain global economic climate.

Intel Corp., International Business Machines Corp. and Microsoft Corp. all reported revenues and earnings that were broadly in line or slightly ahead of expectations. Microsoft's fourth-quarter results, including an unexpectedly strong showing from sales of its Office software, are a rare positive from a company that has failed to excite investors in recent years.

But Google Inc. stood apart from its high-tech peers yesterday, reporting earnings that fell short of lofty Wall Street forecasts. The company's stock fell about 9 per cent in after-hours trading after the company said it earned $9.50 (U.S.) per share in the fourth quarter, well short of the expected $10.49. The leading online advertising company still showed strong growth however, with revenues rising 25 per cent to $10.6-billion.

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"It's an issue of expectations," said Colin Gillis, an analyst with BGC Partners in New York. "Expectations for Google were white-hot. The December quarter is typically Google's best. They should be smashing records. For Microsoft, people were expecting a train wreck because of the market for personal computers."

Microsoft eked out a modest profit gain, earning 78 cents per share – up just one cent from the year before, but two pennies ahead of expectations. But it still impressed investors by increasing its revenue 5 per cent over the same quarter a year earlier. Microsoft stock increased by 3 per cent in after-hours trading.

While demand for Microsoft's core Windows products fell because of weak demand for PCs, sales in its business division, which sells Microsoft Office software to corporations, were $6.3-billion, up 2.8 per cent year-over-year. Operating income from the division was $4.2-billion, more than half of its total operating income.

"Office saved the day" for Microsoft, said Mr. Gillis. "It put up a monster quarter."

For Microsoft – the one time 800-pound gorilla of the tech world that has seen its star fade in recent years as it has lagged others such as Google – it was a better-than-expected start to a year that CEO Steve Ballmer has said will be the corporation's "reset moment."

Analysts point to the company's upcoming launch of its Windows 8 platform, which is designed to improve its weak position in the tablet and mobile market where it badly lags Apple Inc., and its strong product suite in other areas.

"Microsoft is at an interesting juncture because their product line has never been better," said Roger Kay, a technology analyst with Endpoint Technologies in Wayland, Mass.

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"They have a bunch of things doing very well. They still don't have a lot of sex appeal, but I wouldn't count them out. Their long-term franchises still have a lot of value."

Meanwhile, computer services giant IBM reported a 4.4-per-cent increase in fourth-quarter profit on rising software demand and issued a bullish forecast for earnings in 2012. IBM has benefited from its command of the corporate market, and the fact its long-term contracts enable it to weather downturns better than other technology companies.

"IBM tends to be safer when the market is going through periods of volatility," said RBC analyst Amit Daryanani.

The outlook for IT spending in 2012 remains tepid, but positive. Technology research firm Gartner recently forecast global IT spending would increase by 3.7 per cent in 2012 to $3.8-trillion, down markedly from the 6.9-per-cent increase registered last year.

Endpoint's Mr. Kay said that during the recent Consumer Electronics Show in Las Vegas, "my sense was that for most companies, things were looking up, and on the mend a bit. They aren't going gangbusters, but steady as she goes.

"[Corporate]buyers are back, and there's a sense things are okay …There's a sense we're at the bottom, it's not going down further and there's positive growth ahead."

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With files from Bloomberg News

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About the Author

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine, where he was project co-ordinator of the magazine's inaugural Rich 100 list. More

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