Wall Street Beat: Tech rallies on Intel, PCs

Technology stocks rallied for the second week in a row after hitting a near term low July 1

Technology stocks found fresh reasons to rally this week after chip giant Intel reported stellar second-quarter earnings and two market researchers said the computer industry continues to grow at breakneck speed.

The reports highlight continued strength in the tech sector despite worries over possible slowing economic growth globally, particularly in Europe.

Intel posted all-time highs in revenue, gross margin, operating profit and earnings per share in the second quarter. The only major financial record Intel failed to beat was its old net profit mark of US$3.1 billion from the second quarter of 2000. The world's largest chip maker wasn't short by much: Its net profit was $2.9 billion.

"In Q2, Intel reported its best quarter ever as the economies of the world continued to reflect renewed economic momentum," said Intel CEO Paul Otellini, in a conference call with investors. "In addition to continuing year over year growth in the consumer [computer] segments, this quarter we benefited from a broad based return of the enterprise and small business segments," he added.

The return of enterprise purchases of IT gear, including PCs and servers, is vital to the PC industry. The PC sector has been driven by consumers over the past several years, while corporations have put off upgrades as long as possible to avoid unnecessary spending. Now they are upgrading, Otellini said, because their computers have become so old that its more costly to maintain them than to buy new ones.

Investment bank Goldman Sachs predicts corporate IT demand will kick in during the second half of this year and may last through 2012, it said in a research note Thursday.

IDC and Gartner followed Intel's earnings report with fresh data from the PC industry showing over 20 percent year-on-year growth in PC shipments for the second quarter.

IDC noted robust PC shipments worldwide in the second quarter, including Europe, and agreed that corporations are starting to upgrade aging fleets of computers.

"The surge in consumer activity seen in the past two quarters has started to slow as expected, while commercial replacements continue to grow," it said in a statement.

Technology stocks rose on the positive reports. The technology-heavy Nasdaq Composite Index has gained 2.4 percent so far this week to close Thursday at 2249.08, while Intel's stock has surged 6.3 percent to $21.51 over the same time. Should the Nasdaq hold on to its gains Friday, it would mark the second weekly increase in a row since the index hit a recent low of 2061.14 on July 1.

Global technology stocks continue to face headwinds due to jitters over sovereign debt and the pace of the global economic recovery. Investment bank Credit Suisse summed it up in a report on Wednesday in which it raised its full year earnings estimates for Intel after the company's strong earnings report, but warned that enterprise PC demand could weaken if economic growth falters.

Next week will bring fresh quarterly earnings reports from more technology leaders, including IBM on Monday, Apple and Yahoo on Tuesday, Qualcomm and eBay on Wednesday and Amazon on Thursday.

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