Solid earnings and high M&A activity drive IT

Financial results from Symantec and Nortel, along with M&A (merger and acquisition) news from Microsoft and Ebay this week underscore trends that are generating excitement among IT investors.

Healthy earnings and M&A activity have helped push the tech-oriented Nasdaq exchange to a 4.3 percent gain last month, the heart of the first-quarter financial reporting season.

Symantec shares Thursday jumped by $0.88 to close at $19.05, a day after the company reported its results. Quarterly revenue grew 5 percent to hit $1.36 billion, and although earnings fell 49 percent, the company’s EPS (earnings per share), excluding one-time charges, were $0.24, compared to the average estimate of $0.20 by analysts polled by Thomson Financial. Company guidance for its 2008 financial year was EPS in a range of $1.10 to $1.15. Analysts, on average, expected EPS of $1.09.

Brokerages, including Merrill Lynch, upgraded Symantec from “hold” to “buy.” The quarter showed that the company appears to be righting itself after a string of rough quarters ascribed to difficulties integrating storage company Veritas, which it bought in 2005. Officials also said the consumer business rose 11 percent, while the corporate part of the business did better than expected — important in a saturated enterprise market. Officials also said they saw no impact from Microsoft’s entrance into the security business.

In advance of its official results, issued Thursday, Nortel on Tuesday said revenue for the quarter was $2.48 billion, up 4 percent from last year. In March it expected revenue to be flat. The company said margins were higher than expected and that it plans further cost cuts this year. In reaction, company shares jumped by $2.21 to close at $27.81 Wednesday.

M&A news also stoked the market this week as Microsoft announced Thursday that it would buy Paris-based ScreenTonic, which offers location-oriented advertisements on mobile devices. Microsoft is struggling to catch up to Google in the realm of advertising services, and the market smiled at the news: Microsoft closed at $30.97, up by $0.36.

EBay rose by $0.90 cents on Thursday to close at $34.62 after announcing that it had acquired a minority stake in Turkey-based online auction site GittiGidiyor.com.

M&A activity is seen as a sign of a vital IT market — especially in hot sectors like Internet-based companies — as well as an illustration of a liberal lending environment, a healthy stock market, and generally strong corporate earnings.

In an era of moderate expansion, where creativity is needed to achieve better-than-average growth, analysts have applauded gutsy moves on the part of companies that seek to bulk up against competitors. M&A moves have to make sense, though, and product integration must be smooth.

In the first quarter of 2007, venture capitalists invested $7.1 billion in 778 deals, the highest quarterly dollar amount since the fourth quarter of 2001, the tail end of the dot-com era, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association.

“We don’t expect this pace to decrease, ” according to Tracy Lefteroff, global managing partner, Private Equity & Venture Capital and Life Sciences Industry Services, on a conference call to discuss the survey results last week.