EARNINGS PREVIEW: Cloud Computing Still Bright Spot for Software Cos

Date : 07/16/2012 @ 3:09PM
Source : Dow Jones News
Stock : Microsoft Corp. (MSFT)
Quote : 94.06  2.33 (2.54%) @ 7:59PM
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EARNINGS PREVIEW: Cloud Computing Still Bright Spot for Software Cos

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   By Nathalie Tadena 

TAKING THE PULSE: While information technology spending remains muted amid a challenging global macroeconomic environment, businesses' continued investment in cloud services remains a bright growth spot for major software companies. Earlier this month, technology research firm Gartner Inc. reported worldwide information technology spending is on pace to reach $3.6 trillion this year, a 3% increase from last year. Gartner reported there has been little change in business confidence and consumer sentiment in the past quarter and noted the short-term outlook calls for continued cautious IT spending.

   International Business Machines Corp. (IBM) - reports July 18 

Wall Street Expectations: Analysts polled by Thomson Reuters expect IBM to report a profit of $3.42 a share and revenue of $26.31 billion. In the same period last year, the company posted a profit of $3 a share and operating earnings, which exclude retirement-plan costs and amortization, of $3.09 a share. IBM reported revenue of $26.67 billion last year.

Key Issues: IBM has benefited from its push toward higher-margin, complex businesses such as business analytics, and away from crowded fields where companies can compete on price only. While that bet has been paying off, worries have emerged the macroeconomic environment is hurting spending on technology, and the company's revenue has been lighter than expected for the past couple of quarters. The hardware division has seen two consecutive quarters of revenue declines and the company has warned that the division would likely have a tough comparison in the second quarter. In a recent note, UBS said it expects IBM to achieve its 2015 road map, but noted revenue growth could continue to disappoint as services and Unix technology sales come under pressure.

   Microsoft Corp. (MSFT) - reports July 19 

Wall Street Expectations: Analysts project Microsoft to report fiscal fourth-quarter earnings of 62 cents a share and revenue of $18.14 billion. A year earlier, Microsoft reported earnings of 69 cents a share and revenue of $17.37 billion.

Key Issues: Microsoft has been transitioning customers to cloud services and its forthcoming Windows 8 operating system, which is designed to work on traditional PCs and mobile devices and is critical to the company's future as it looks to better compete in the fast-growing mobile market. However, Microsoft still needs sales of its flagship products to remain robust. Continued strength in sales of its Office suite of products to corporate customers has helped cushion the company from the impact of slumping personal computer sales. The software heavyweight disclosed earlier this month that it will record a $6.2 billion goodwill write-down in its online services division in the quarter, connected to its 2007 acquisition of online-advertising agency aQuantive Inc. for $6.3 billion. Microsoft said while the online-services division has been improving the company's expectations for future growth, profits are lower than previous estimates, which led to the write-down.

   VMware Inc. (VMW) - reports July 23 

Wall Street Expectations: Analysts expect VMware to post a per-share profit of 66 cents and revenue of $1.11 billion. In the same period of last year, the company recorded earnings of 51 cents a share, or 55 cents excluding stock-based compensation, tax adjustments and other items. VMware reported revenue of $921.2 million last year.

Key Issues: VMware, which is majority-owned by storage vendor EMC Corp. (EMC), dominates the market for virtualization software, which allows users to run multiple computers' operations on a single machine, a key step in cloud computing. Customers that had turned to the company for software to virtualize their information systems are now buying software to build applications and run their enterprise. The company's core-virtualization software VSphere has continued to perform well in competition with software from Microsoft, Oracle and open-source products. However Wunderlich Securities, which recently cut its estimates and price targets on VMware, noted the company experienced "numerous late-quarter push-outs" in the latest period. The firm continues to see VMware as a "key element in the deployment and management of next-generation data center infrastructure."

   Citrix Systems Inc. (CTXS) - reports July 25 

Wall Street Expectations: Wall Street predicts Citrix will record earnings of 59 cents a share and revenue of $613 million. A year earlier, Citrix posted a per-share profit of 43 cents, or 57 cents excluding stock-based compensation and other items, and revenue of $530.8 million.

Key Issues: Citrix, which competes with VMware in the virtualization space, has posted double-digit revenue gains over the past two years as its desktop-solutions business, which includes XenApp and XenDesktop, has seen its growth accelerate due to the increasing importance of desktop virtualization. In a recent note, Nomura said Citrix appears to have had a good quarter in the educational segment in North America, noting large educational deals helped out its results.

(The Thomson Reuters financial estimates and year-earlier figures may not be comparable due to one-time items and other adjustments.)

-Write to Nathalie Tadena at nathalie.tadena@dowjones.com

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