Good news for tech: Nasdaq tops start-of-year level

Mobile-device makers Motorola and Palm had a rocky time in the market this week, but positive news from Adobe and Oracle, along with the promise of steady growth, helped boost confidence in the technology sector.

The Nasdaq Composite Index, home to bellwether tech companies, Wednesday rose above its start-of-the-year level. In late February, the index declined due to global panic selling sparked by a slump in Asian markets. The Wednesday announcement by the U.S. Federal Reserve Board that it would hold lending rates steady had a halo effect on the technology sector, even though most tech acquisitions have been done with cash reserves.

IT vendors over the past year have gone on a spree of acquisitions in an effort to jump into hot areas, such as Web 2.0 interactive Net services, and extend their market reach in an increasingly globalized technology market.

Positive news this week echoed another analyst report forecasting slow but steady growth this year, especially because of strong global sales. The health of the U.S. tech sector improved in the fourth quarter of last year, posting its best performance in five years, according to the Forrester/ITAA Tech Sector Index: Q4 2006, published by market researcher Forrester Research. The index comprises metrics for corporate spending plans, vendor revenue, venture capital funding, and employment.

“The stage is set for more slow but steady gains in the U.S. tech sector in 2007,” said the report.

Moderate growth, while beneficial for the sector as whole, will result in some big losers, however.

This week, the losers were Palm and Motorola. Palm shares declined ahead of its earnings report, issued after the market closed Thursday. Shares plunged to $17.74, down by $1.71, ahead of an expected weak financial results report. In fact, Palm reported a 61 percent drop in its third-quarter profit as rumors of a buyout continued.

Motorola shares on Thursday, meanwhile, dropped by $1.24 to close at $17.50 after it announced that it expects a first-quarter earnings per share loss of $0.07 to $0.09, including acquisitions. Analysts polled by Thomson Financial were forecasting EPS of about $0.17 a share.

Palm and Motorola are victims of the tough mobile device market, where vendors need the hippest designs and the latest technology to succeed. Motorola is a rumored buyer for Palm, but after this week’s news, that deal looks doubtful.

On the positive side, Oracle on Tuesday underlined applications and middleware sales when it reported fiscal third-quarter results that exceeded both the company’s and analysts’ forecasts: Excluding one-time charges Oracle’s net income hit $1.3 billion, or earnings per share of $0.25, while revenue increased to $4.45 billion. Thomson Financial analysts had predicted pro forma revenue of $4.3 billion and pro forma EPS of $0.23. Analysts praised the company’s aggressive acquisitions strategy.

“A slow, steady growth market makes it hard to outgrow (competition) organically,” said Forrester Research Vice President Andrew Bartels.

Though software is growing faster than the hardware and telecom equipment sectors, the ERP arena is especially competitive: Oracle Thursday announced it is suing rival SAP for, among other things, violations of U.S. fraud laws and unfair competition.

Adobe shares meanwhile on Wednesday hit a 52-week high after the company posted strong quarterly results and a positive outlook for the rest of the year. The company forecast revenue of $700 million to $740 million and earnings per share, excluding one-time items, of $0.34 to $0.36. Analysts had been expecting sales of $717 million and earnings per share of $0.35. That is a good omen for the company’s upcoming Creative Suite 3, which includes Photoshop.