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8/7/2008
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Tech Industry's Financial Results Show Sky Isn't Falling

An analysis of second-quarter results for Cisco, SAP, IBM and others shows that businesses are still spending on IT despite the poor economy.

Two in five North American IT execs cut IT spending in the second quarter compared with their plans at the beginning of the year, our recent survey found. But the sky didn't fall on big tech vendors, nearly all of whom recently reported second-quarter results.

Credit strong IT spending in the rest of the world, as shown in Cisco's results, announced Tuesday. Quarterly net income edged up 4.4% to $2.0 billion, while revenue jumped 9.9% to $10.4 billion. The drivers: 30% growth in orders in China, 20% in India, and 19% in Asia Pacific. In the United States and Canada, growth was just 7%, though orders from large U.S. businesses rose 13%.

Particularly strong product areas for Cisco included unified communications (its voice-over-IP business), up 29%, and application networking services, up 30%. CEO John Chambers promises to "aggressively invest" in emerging segments "regardless of how long it takes for the macro environment to rebound."

The mood brightened at SAP since its dour first quarter, when executives signaled cautious spending, including scaling back its ballyhooed software service plan. Though net profit was down 9%, partly because of the cost of acquiring Business Objects, most analysts backed co-CEO Henning Kagermann's call of "strong performance." Asia-Pacific sales rose 30% and U.S. sales 14%, which was faster than the 6% growth in the first quarter. That left SAP predicting full-year sales growth in the upper end of its earlier 25% to 27% estimate.

Other showings: IBM's net income rose 22% to $2.77 billion and sales increased 13% to $26.8 billion, prompting CEO Sam Palmisano to declare an "outstanding quarter." Nearly two-thirds of IBM's revenue comes from outside the U.S. At Intel, net income in the second quarter rose 25% to $1.6 billion, with revenues up 9 percent to $9.5 billion. Intel CEO Paul Otellini predicted "continued healthy demand."

Who's hurting? Sun's sales dropped 1.4%, and profits plunged 73% to $88 million. EDS cost-cut its way to 16% profit growth on a 3% sales bump. And Microsoft's 41% net income growth fell short of analysts' expectations. Office sales were up 19% and business server software 21%, though Windows Vista wasn't a blockbuster, and consumer, online, and entertainment lagged.

According to an InformationWeek survey of 600 U.S.-based business technology executives conducted last month, 40% said they decreased IT spending in the past quarter relative to their original 2008 budgets. You can dowload that report here (registration required). Tech vendors have the remaining 60% -- as well as those in growing regions outside the U.S. -- to thank for a mostly respectable quarter.

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