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Technology giants, Apple Inc. (AAPL) and International Business Machines (IBM) reported stellar quarterly earnings, smashing analyst expectations and shinning a ray of light on the technology sector and the exchange traded funds (ETFs) that track it.

Apple reported a fourth quarter increase in revenue to $26.7 billion, while boasting gross margins of 38.5 percent and net income of $6 billion, or $6.43 per share, beating Apple’s own forecasts of revenues of $23 billion and a gross margin of 36 percent. Furthermore, these numbers crushed the $3.38 billion in net income that the Cupertino, California-based company boasted for the same period the previous year. This jump in revenue was primarily driven by increased consumer spending and hence better than expected sales, which included 16.24 million iPhones, 7.33 million iPads, 4.13 million Macs and 19 million iPods. Analysts were expecting sales in the realm of 15.5 million iPhones, 6.2 million iPads, 4.2 million Macs and 19 million iPods.

A similar tune was sung at IBM as the company reported fourth quarter revenue and profits ahead of estimates. Revenue at the IT products and services company rose 7 percent year over year to $29 billion and profits jumped to $5.3 billion, an increase of nearly 16 percent from a year earlier. IBM’s performance was primarily driven by an 18 percent increase in signings of services contracts, which was worth around $22.1 billion during the quarter and increased business demand for computer hardware, as sales of the company’s System Z mainframe computers rose 69 percent in the quarter.

As for the future of these two companies, some are worried that the medical leave of Apple’s Steve Jobs could hurt future performance; however the new partnership between Apple and Verizon Communications (VZ) and Vodafone Group (VOD) should bolster future demand for iPhones and Apple’s vertical integration and strategic and structural advantages which have enabled the innovative company to build a competitive advantage is likely to position the company well in the near future.

IBM’s future remains rosy as businesses start to upgrade IT systems and loosen the grip they had on their wallets. IBM increased signing of new outsourcing contracts in the latest period and boasts a backlog of service deals worth an estimated $142 billion. As a result, IBM sees annual earnings for the year to be “at least” $12.56 a share and in the same ball park as analyst expectations.

Some diversified ways to play Apple and IBM include:

  • Internet Architecture HOLDRs (IAH), which allocates nearly 33.82% of its assets to IBM and 23.21% to Apple
  • iShares Dow Jones US Technology (IYW), which allocates nearly 13.79% of its assets to Apple and 8.04% to IBM
  • Technology Select Sector SPDR (XLK), which allocates nearly 12.29% of its assets to Apple and 7.17% to IBM
  • Vanguard Information Technology ETF (VGT), which allocates 10.8% of its assets to Apple and 7.19% to IBM.

Disclosure: No positions

Source: 4 ETFs Driven by Apple and IBM’s Stellar Performance