The Google growth machine is back in gear. Together with International Business Machines (IBM) and Intel, it gave a boost this week to the technology sector with strong results that outstripped even raised expectations. The world's number one search engine not only posted higher than expected third-quarter profits and revenues, but also said it was looking for major acquisitions and could buy a large company "maybe every year or two".
"While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future," said Google's chief executive, Eric Schmidt. "We're open for business in making strategic acquisitions, both large and small," he told analysts in a conference call on Thursday. Hot on the heels of bellwether chipmaker Intel's robust third quarter report of a US$1.9 billion net profit (Dh6.97bn) on Tuesday, the results from Google and technology services giant IBM showed demand from both consumers and businesses is returning.
"Corporate spending is very much starting to show some rebound," said Keith Wirtz, the president and chief investment officer at Fifth Third Asset Management. "Outside the US, I think you would see technology spending is stabilising in Europe as well." Intel's results added more fuel to a tech sector rally that began earlier this year, when signs emerged that the worst of the recession could be over.
Actual revenue growth is being seen in only a handful of tech companies - Google is one - but the top-line results from IBM, Google, Intel and Advanced Micro Devices (AMD) all beat Wall Street estimates. Google was widely expected to be one of the biggest early beneficiaries of an economic recovery because of its dominance of the online search market, the growth of which has slowed as recession-hit companies cut back on advertising spending. Both the amount of money that advertisers pay for the text ads that appear alongside search results as well as the number of clicks on those ads by web surfers had increased quarter over quarter, it said.
Net revenue in the third quarter - excluding traffic acquisition costs, or the money that Google shares with partners, rose 8.5 per cent on a year earlier to $4.38bn, beating the $4.24bn expected by analysts. Net income was $1.64bn, compared with $1.29bn a year earlier. "I think a rising tide will lift all boats," said JMP Securities analyst Sameet Sinha. "Definitely, we hear from advertisers that they are starting to invest in the fourth quarter. E-commerce is doing really well and that is encouraging advertisers to spend online."
IBM on Thursday raised its full-year outlook and reported higher-than-expected quarterly profit as its growing focus on higher-margin software and services businesses helped it cope with weak technology spending. The company said it expected full-year earnings of at least $9.85 per share, up from its previous outlook of at least $9.70 a share. IBM's third-quarter net profit rose to $3.2bn from $2.8bn a year earlier.
Revenue fell 7 per cent from a year earlier to $23.6bn, although it rose 1 per cent from the previous quarter. Wall Street had expected $23.4 billion. Although IBM's shares fell as investors, expecting the company to raise its long-term guidance even further, locked in profits, IBM sounded an optimistic note as it forecast a return to revenue growth in the fourth quarter. Also late on Thursday, AMD posted a narrower than expected loss and turned its core chipmaking business profitable, thanks to its strong notebook processor sales. AMD reported a net loss in the third quarter of $128m compared with a net loss of $134m a year earlier.
Revenue fell 21.3 per cent to $1.4bn from $1.78bn a year ago but came in ahead of the $1.26bn expected by analysts. The company said its chip-design arm eked out a net profit of $2m. AMD accounted for 11.9 per cent of global microprocessor revenue in the second quarter, according to the industry tracker iSuppli. But Intel controls most of the remaining sales and should benefit more from any sector rebound.
Next week will provide a further snapshot of technology demand, as it brings quarterly reports from both Apple and Microsoft. * with Reuters