Strong tech earnings quell fears

Investors seem to have recovered confidence in tech stocks after giants IBM and Microsoft reported strong earnings.

2 min read
Strong earnings from both
IBM (IBM) and Microsoft (MSFT) have settled investors' tech jitters, at least temporarily.

Investors appear to have recovered their confidence after weaker than expected results from Intel (INTC) and other technology movers and shakers threw them for a curve.

IBM and Microsoft grabbed Wall Street's attention with better than expected results, and analysts reacted with a round of earnings upgrades.

Steven Milunovich, an analyst at Merrill Lynch, said in a report released today that IBM's solid third quarter should help out the stock.

And it did. Today the company's stock gained 7-5/8 points to end the day at 105-1/8, up from yesterday's close of 97-1/2. Meanwhile, Microsoft's stock also reaped the benefits of Wall Street's approval. The company's stock gained 5-7/8 to end the day at 138-1/2, from yesterday's close of 132-5/8.

The broader markets grabbed some of the benefits from these bellwethers' positive results. The Nasdaq gained about 27 points to end at about 1712.5, while the Dow Jones Industrial Average gained 139 points, moving back above the 8000 mark, to end the day at 8060.

Mulinovich added that operating profit growth should accelerate in the fourth quarter, fueled by new server product cycles.

Gary Helmig, an analyst at SoundView Financial Group, raised his 1997 earnings estimates on shares of IBM to $6.22 per share from $6.16 per share, and his current quarter estimate to $2.20 per share from $2.10 per share.

PaineWebber analyst Steve Smith, however, bucked the positive trend of upward revisions and reiterated an "unattractive" rating on IBM. He noted that the company's underlying growth rate continues to disappoint and that IBM's mainframe business did not grow.

Meanwhile, Microsoft gained a lot of praise as well, despite its recent run-in with the Department of Justice.

Mary McCaffrey, an analyst at BT Alex. Brown, said in a report today that Microsoft's results were "solid," and raised her earnings per share estimates to $3.25 from $3.15 a share, for fiscal year 1998.

The analyst noted that the ongoing litigation between Sun Microsystems (SUNW) and Microsoft over the use of the Java programming language or the DOJ complaint will not inhibit near-term results.

Lehman Brothers raised its fiscal 1998 earnings estimate on the software giant to $3.21 per share from $3.15. The firm cited Microsoft's appropriation of $253 million or 13 cents per share to unearned revenue as a positive demonstration that "Microsoft has total control of the numbers and that the printed number would have been much higher."

Donaldson Lufkin & Jenrette reiterated its "buy" rating on Microsoft, citing Microsoft's better-than-expected fiscal first-quarter earnings.

DLJ noted Microsoft shares will likely face resistance due to the DOJ's legal action related to its Internet Explorer browser software, but should outperform the market over the long term.

Reuters contributed to this report.