Wall Street Beat: IT earnings season off to heady start

Technology bellwethers Apple Computer and Advanced Micro Devices  got earnings season off to an exuberant start for the high-tech sector this week. Excellent results helped boost the Nasdaq Composite Index, weighted heavily with IT companies, to make Thursday the sixth day in a row that it closed up, and the fifth consecutive day that it closed at its highest level in six months.

A Lehman Brothers  research note on Google, meanwhile, gave an extra vote of confidence to the company’s paid-search business, as high-tech investors brace for a gale of financial reports from leading e-commerce and computer companies over the next week.

This week’s news, meanwhile, was welcome, after the Nasdaq index ended the first half of the year with a 5.4 percent decline. The index (COMPX) closed Thursday at 2152.82, up 8.71 points for the day, in the wake of the Apple and AMD announcements, which took place after the market closed Wednesday.

The U.S. markets also benefitted from upbeat macroeconomic signs, primarily Wednesday’s news that the U.S. trade deficit improved slightly in May as a result of a decline (albeit perhaps temporary) in world oil prices.

Apple’s results beat analyst forecasts on both revenue and profit, making for a record quarter for the company that was especially welcome because growth was not entirely due to the iPod: Mac shipments grew three times faster than the overall PC industry during the quarter, according to Apple, with desktop shipments growing by 65 percent and notebook shipments expanding by 8 percent compared to the year-earlier period.

Revenue was $3.5 billion, exceeding the analyst consensus forecast, as reported by Thomson First Call, for $3.33 billion. Profit was $0.37 per share, beating the analyst forecast of $0.31.

There are shadows on the horizon, however, as market observers consider whether iPod demand will slow down. Various signs point to this: Recent Apple price cuts on the players, and statements by Apple that it would ship out players within a day of online orders. In addition, the common belief among many company observers is that users may hesitate to purchase Apple computers in the coming quarters as they wait for the first products based on Intel Corp. chips to be released next year. Finally, Apple itself cautioned that revenue would be flat for the current quarter.

Despite these caveats, Apple (AAPL) shares rose $2.40 Thursday to close at $40.75. Sixteen out of 23 analysts polled by Thomson First Call are recommending a “buy” or “strong buy” on the stock, seven are advising a “hold,” and none are telling investors to sell.

AMD, meanwhile, announced a profit Wednesday, as an uptick in flash memory sales added to ongoing advances in its chip business.

Although revenue was flat at $1.26 billion, the company posted a profit of $0.03 per share, against analysts’ forecast of a loss of $0.05 per share. One highlight of the quarter was Opteron revenue, which almost doubled from the first quarter of the year as heavyweight manufacturers such as Hewlett-Packard Co. and IBM Corp. incorporated the chip in servers. AMD shares (AMD) closed Thursday at $19.88, up by $0.63 on the news.

In the Internet arena, Lehman Brothers raised its share-price target on Google Inc. in a research note Wednesday, arguing that the company is getting more of a return on investments in the paid-search business than most people realize. As a consequence, it raised its target price on Google shares (GOOG) to $350 from $275, a move that helped fuel a jump in the company’s share price Thursday. Company shares bounced up over the $300 mark once again, to close at $300.80, up by $1.94 for the day.

Google will report earnings next week, along with other e-commerce bellwethers such as EBay, and Yahoo, and IT leaders IBM  and Intel. Whether a rally in high-tech share prices can be sustained will depend, in large part, on how these companies say they are doing.