Wall Street Beat: Vendor creativity rewarded

Global IT expansion this year is expected to be modest, but vendors that demonstrate nimbleness and creativity are being rewarded.

Market indices have declined as traders brace for a slowdown after corporate share prices rose steadily over the past seven months. But IT investors are still jumping on the bandwagon for companies that are seen making wise investments and restructuring decisions.

Traders applauded EMC’s decision, announced Wednesday, to offer 10 percent of its VMware virtualization software subsidiary in an IPO.

Despite a general market downturn Thursday due to concerns over the U.S. housing market, EMC shares were trading at $14.58 Thursday afternoon, up by $0.99. The spin-off lets the public inject cash into a part of the company offering trendy virtualization technology while allowing users and investors to more easily analyze the core traditional storage business, which many analysts feel is undervalued.

Hewlett-Packard shares also remained high this week in the wake of its Monday announcement that it will buy business transactions monitoring software supplier Bristol Technology for an undisclosed amount. HP said Bristol will help strengthen its business technology optimization product offerings.

Cisco Systems shares jumped Wednesday, after it issued its earnings report Tuesday, and stayed high. Cisco is doing well in several key areas. Beating analyst forecasts for sales last quarter, Cisco reported that revenue increased more than 27 percent to $8.4 billion and profit grew 39.7 percent to $1.9 billion, compared to the year-earlier quarter. Key to company growth were storage products and developing markets — precisely what market observers are looking for.

Brokerage Robert W. Baird & Co. upgraded Cisco to “outperform” from “neutral.”

User demand for security, storage, wireless devices, and server optimization technology remains high, analysts say. Small businesses and developing economies are forecast to be the main drivers of growth. “The opportunity to provide SMBs with advanced technology will continue to grow significantly throughout the world in 2007,” according to the report, from Ray Boggs, vice president for Small/Medium Business and Home Office research at IDC.

Companies positioning to capitalize on trends are even, sometimes, forgiven losses. Even though ISP EarthLink Tuesday reported a fourth-quarter loss of $24.8 million, compared with a year-earlier profit of $29.2 million, it got kudos for making efforts to target growth opportunities.

“The industry is shifting, and it is focusing on new opportunities like broadband, wireless Internet and Internet telephony in a variety of marketplaces around the USA, ” said telecom analyst Jeff Kagan.

EarthLink’s loss was mainly attributed to its investment in Helio, the company’s wireless joint venture with South Korea’s SK Telecom.

Despite the loss, Goldman Sachs analyst Anthony Noto upgraded the stock to “neutral” from “sell.”

“We believe the flexibility of the company to cut these investments or restructure via a leveraged buyout, management buyout or recapitalization limits the downside,” Noto wrote in a research note.