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.
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.