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Summary:

Is the recession over already? Intel and IBM this week posted stronger-than-expected numbers and raised guidance for future quarters, pushing the Nasdaq 7.5 percent higher and inspiring some to hope a recovery was imminent, if not already here. But with all due respect to the bulls […]

Is the recession over already? Intel and IBM this week posted stronger-than-expected numbers and raised guidance for future quarters, pushing the Nasdaq 7.5 percent higher and inspiring some to hope a recovery was imminent, if not already here.

But with all due respect to the bulls (and apologies to Richard Fariña), the tech industry has been down so long it only looks like up. Maybe the past year has been so grim and disorienting we’re willing to redefine what a successful quarter looks like. But while it’s one thing to credit a company with managing a severe downturn competently, it’s quite another to declare the worst is over when there are no clear signs that revenue will be rebounding.

nasdaq 5day chart
Intel’s second-quarter earnings were described as “stellar” and possibly heralding a recovery. So it’s somewhat jarring to look at the numbers and see that in fact revenue fell 15 percent from the same quarter a year ago and the company swung to loss of 7 cents a share (excluding a fine imposed by the European Commission, Intel posted a profit of 18 cents a share, down 10 cents over last year). The stock has rallied 11 percent on the numbers largely because analysts were expecting them to be much worse.

In its conference call with analysts, Intel executives offered little confidence in an actual recovery. CEO Paul Otellini said that even with Windows 7 due this fall, he doesn’t expect businesses to increase spending until some time next year. Sales to consumers remain as uncertain and unpredictable as ever. Any strength Intel saw last quarter came from stimulus spending in China and customers restocking inventories that they cleared out late last year. None of this points to a solid recovery.

IBM also delivered what was greeted as a “walkoff home run.” Although revenue was down 13 percent from the same quarter a year earlier, earnings per share rose 18 percent to $2.32. And while earnings growth in a weak economy is without question good news for investors, it’s a little harder to argue that this augurs a turnaround for tech.

IBM not only spent $1.7 billion last quarter to buy back shares of its stock, but so far this year it’s laid off 10,000 of its workers. Layoffs are a brutal if effective way to weather a recession, but to say that IBM has turned a corner simply because it’s cutting costs faster than its revenue is falling doesn’t make sense.

The cautionary note in Google’s slowing sales is a better indicator of where things stand with technology companies in general. The search giant eked out 4.5 percent growth in net revenue last quarter, down from 43 percent a year earlier. While CEO Eric Schmidt was “pleased” with Google’s performance in the downturn, he was also blunt in declaring that “It’s too early for us to tell when the recovery will materialize.”

I don’t mean to belittle what these companies have accomplished in the recession. But there is a sense among some investors and financial publications that a corner is being turned. It’s too early to start popping corks from champagne bottles. For that, we’ll need to wait until up once again looks like up.

  1. Gadget Sleuth Saturday, July 18, 2009

    Agreed completely. When a small loss instead of a large loss is considered a “home run”, we haven’t recovered yet.

  2. With no rebound in revenue, we are from from a recovery or even “the bottom”.

    Companies that responded quickly (typically meaning they got rid of staff quickly, usually the highest cost) can look impressive operationally.

  3. What I lost in the Bush market I have already regained – and more.

    Half or more of what I acquired at what I considered to be a bottom – is properly termed tech investments.

    I ain’t no expert or analyst – but, I’ve been hanging out on this particular street corner for 26 years. Some of it had to sink in. :)

  4. courtney benson Saturday, July 18, 2009

    In the past month had several meetings with tech CEOs (software applications and services)and tech sales professionals. CEOs see things picking up, most sales guys and gals say they are struggling to meet quota. Some brie spots include SaaS, Cloud Computing and Social Networking services.

  5. Maybe the recession is still here but it is clear that we can see a light of recuperation.
    It is time to start again and lunch new business for take our share in that recuperation

  6. We are definitely not recovered, but we are well on our way. Now is a crucial time in determining where you’ll be in the next 10 years.

    Ravi
    @followwme

  7. Virtual Web Symphony Sunday, July 19, 2009

    We have bottomed out everywhere so only direction we can go now is up. Let these signs of recovery be kept and nurtured as lost treasure. Over last few weeks we have read and heard about recovery signs from all across globe. Let good times come back as fast as they can.

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    [...] A Tech Recovery or Wishful Thinking? [...]

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    [...] A Tech Recovery or Wishful Thinking? >> GigaOm [...]

  10. Nitin Borwankar Monday, July 20, 2009

    Hi Kevin,

    You seem to be missing something that appears to be a pattern that we might see more going forward – i.e. revenues dropping but profits increasing. This might mean companies are getting “leaner and meaner” and more adapted to the tough times ahead. after all the goal of a company is to make a *profit* not just to make revenue.

    So your focus on revenue while ignoring the earnings uptick seems a little “rear view mirror” to me. Perhaps we need to be evaluating companies somewhat differently as they come out of this downturn ?

    Having said all that I don’t believe the worst is over for the overall economy as there’s a lot of foreclosed housing inventory sitting on the sidelines and we are likely to see a few more bumps as that works it way through the system.

    Nevertheless there’s a silver lining with these earnings reports that you seem to have just glossed over.

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