IT provides an economic bright spot

The IT sector continues to provide upbeat news as traders remain skittish in the wake of macroeconomic concerns sparked last week by fresh reports of the weak U.S. housing market.

Though the soft housing market has caused share prices of many tech companies to decline lately along with the rest of the market, earnings news from vendors this week gave IT investors confidence that the sector remains strong.

Nokia, for example, surprised analysts Thursday by reporting net profit of €2.83 billion ($3.8 billion) for the quarter ending in June, a 148 percent jump from €1.14 billion in the same period a year earlier. The gain was mainly due to €1.88 billion in profit that Nokia was able to book as a result of the divestiture of part of its business into the new equipment joint venture, Nokia Siemens Networks BV. However, mobile-phone shipments jumped 29 percent to 100.8 million units after a push into emerging markets, such as India and China. Despite price competition, Nokia was also able to raise the average selling price of handsets to €90 from €89.

Shares of Nokia rose by $2.49 to hit $30.90 by end of the day on the New York Stock Exchange.

In the telecom arena, Verizon Communications said Monday that quarterly net income was $1.7 billion, up from $1.6 billion a year earlier. While that was not a big jump, analysts jumped on the importance of gains in key areas: Verizon reported an increase of 11.6 percent in data revenue, to $4.4 billion, and a 17.1 percent increase in wireless sales, to $10.8 billion. Customers for Verizon’s Fios fiber-to-the-home television service were also key with about 167,000 new customers signing up during the quarter.

“Fios may be costing the company a lot of money to create, but this is what the company has to do in order to remain competitive against new competitors like cable television companies, who will also be selling the big bundle of services,” said telecom analyst Jeff Kagan.

Verizon got a boost in share price as a result of the news, though due to general market volatility, its share-price gain was snuffed out later in the week.

Sun was another good-news story this week when it reported Monday that it had net income of $329 million for the June quarter, compared to a loss of $301 million a year earlier. The gain came as a result of cutting costs as revenue was about flat. Analysts applauded Sun’s ability to control costs and increase margins — a sore spot especially for hardware vendors this year as intense competition brings prices down. On the strength of the report, Caris & Co. analyst Shebly Seyrafi upgraded Sun shares to “above average.” However, in a note Seyrafi did say that “we are concerned about revenue growth.”

Sun’s share price rose from $4.89 to $5.10 on Tuesday and continued to drift higher for a few days despite market turbulence.

There were some dark spots during the week, especially in the telecom equipment sector. Nortel Networks reported Thursday that it suffered a second-quarter loss due to less than expected revenue from sales to carriers. The company lost $37 million compared with net income of $342 million one year earlier.

Alcatel-Lucent also reported a tough quarter Tuesday after getting hit with a second quarter loss of €336 million, compared to a profit of €302 million one year earlier. Like Nortel, the company has been experiencing an uphill battle selling into traditional carrier markets, and has the additional burden of merger costs.

Despite the problems in the telco equipment market, bellwether IT companies have shown surprisingly good second-quarter results and a fairly strong outlook for the rest of the year. As the financial earnings season winds down, IT investors are now looking ahead to see if the third quarter lives up to expectations.