Tech’s Bullish Signals: CSC’s Results Plus HP, IBM Forecasts Bode Well For Sector

And these technology giants followed last month's forecast of higher-than-expected net income by International Business Machines Corp. (NYSE: IBM), the No. 2 computer company.

In all three cases, demand appears to be strong from the enterprise sector for computer servers, services, software and solutions, all of which combine to create the overall sector. As well, they may foreshadow higher earnings for two other technology bellwethers expected to report quarterly results this month, Cisco Systems Inc. (Nasdaq: CSCO), the No. 1 provider of Internet gear, and Oracle (Nasdaq: ORCL), the No. 1 database developer.

To be sure, there aren't silver linings everywhere. At HP, of Palo Alto, Calif., CEO Margaret (Meg) Whitman, only 11 months in office, warned of more mega-writeoffs for decisions she didn't make, such as the acquisition of Electronic Data Systems for $14 billion in 2008. As she continues firing as many as 27,000 employees, costs in the quarter ended July 31 could range as high as $1.7 billion.

So while HP raised its per-share earnings estimate to $1 from 94 cents on continuing operations, on a net basis that includes all the charges, the per-share loss will range between $4.31 to $4.39, compared with last year's net income of $1.9 billion, or 93 cents a share.

Whitman may be taking a page from the handbook of former IBM CEO Louis V. Gerstner Jr., who in his first year at IBM made drastic charges, announced cutbacks and started the Armonk, N.Y., company back on the road to recovery. Under successors Samuel Palmisano and, since Jan. 1, Virginia Rometty, IBM has focused on servers and services, exiting the consumer business completely.

HP, though, will remain in the PC and printers sector, where it remains No. 1, Whitman has said, although the company has not yet devised a successful tablet to compete with the iPad from Apple (Nasdaq: AAPL), the world's most valuable technology company and rivals from the likes of Lenovo Group (Pink: LNVGY) of China, the No. 2 maker; Samsung Electronics (Seoul: 005930) and others.

IBM, meanwhile, which reported second-quarter net income rose 6 percent to $3.9 billion, or $3.34 a share, despite a 3 percent revenue dip to $25.8 billion, still forecasts full-year net income on operations could be $15.10 a share, compared with earlier predictions of just $15. Last year's net income was a record $15.85 billion, or $13.06 a share.

For CSC, the Falls Church, Va., mega-provider of computer services to enterprises and government agencies, first-quarter net income fell to $40 million, or 26 cents a share from $183 million, or $1.17 a share a year ago, although that included a one-time 78 cent benefit from change in tax status for a foreign operation.

CSC's revenue eased 2 percent to $3.96 billion. But the overall report was far ahead of analyst estimates, new CEO Mike Lawrie said he was ahead of plan on a cost-cutting effort and the company predicted full-year earnings between $2.10 and $2.30 a share, compared with earlier analyst estimates of only $1.98 a share.

CSC shares Wednesday jumped 16 percent, or $4.01 to $29.53, bringing their year-to-date gain to nearly 25 percent.

HP's shares rose 2.4 percent, or 45 cents, to $19.41, bringing their year-to-date loss to 25 percent.

IBM shares fell a nickel to $199.03, bringing their year-to-date gain to 8.3 percent.

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