Apple, IBM results point to cheery season

NEW YORK, USA: Dazzling quarterly results from Apple Inc and IBM cheered investors on Wednesday and set the stage for what looks to be a strong earnings season for the technology sector.

At least six brokerages upgraded their price targets on Apple after its results and forecast, both of which were better-than-expected. IBM received a similarly warm reception from analysts. Both reported results Tuesday afternoon.

Shares of both companies performed better than the broader market. Apple shares were steady and IBM shares rose 3 per cent. The Standard & Poor's 500 Index fell 0.58 per cent.

Investors will next turn attention to several other technology powerhouses, including Google Inc on Thursday.

Google, whose shares underperformed the broader market in 2010, has surpassed analysts' revenue expectations for the past five consecutive quarters.

Broadly, technology companies in the S&P 500 Index likely averaged 13 per cent more revenue in the December quarter and could have 10 per cent higher sales in the first quarter, according to analysts surveyed by Thomson Reuters.

Their fourth-quarter profits likely rose 13 per cent and may increase at a similar rate in the first quarter of 2011, according to analysts.

But the U.S. economy remains bogged down with unemployment, and Europe has been shaken by sovereign debt crises and austerity measures. Consumers are cautious, and business spending was a major question market heading into this earnings season.

But Apple and International Business Machines Corp eased concerns about the outlook for the technology sector.

For IBM's part, investors were particularly relieved with the pick-up in services contracts, an indicator of future revenue from outsourcing and other technology projects. Many clients had been wary of committing to multiyear contracts amid an uncertain global economy.

IBM shares rose 3 per cent to $155.28 and a handful of brokerages increased their price targets.

"Given the past two quarters of signings shortfalls, the fourth-quarter signings upside and solid backlog exiting fourth quarter should provide some comfort and improved visibility into 2011 services revenues," UBS said.

J.P. Morgan Securities said software growth of 7 per cent year-over-year represents an important milepost in gaining investor confidence that IBM can grow with the market.

At Apple, Tuesday's results reassured investors about more than just the economy. An across-the-board show of strength suggested that the company could continue its success even with Chief Executive Steve Jobs on medical leave.

"While the news of Steve Jobs' medical leave may continue to add some headwinds to the share price momentum in the near term, we continue to believe improving underlying fundamentals and the strength of Apple's overall management team will counter this uncertainty," Goldman Sachs analyst Bill Shoppe said.

Analysts applauded Apple's faster-than-expected gross margins recovery, backed by robust outlook for iPad and iPhone sales.

Shoppe said the company's new products have historically produced gross margin addition over their lifecycles and the iPad will follow the pattern.

Shares of the Cupertino, California-based company rose as much as 2.3 per cent to $348.60 before retreating to $342.96 later in the session.

The stock has gained more than 7 per cent since the company posted fourth-quarter results in mid-October, when it reported weak gross margins and disappointing iPad shipments.