As the recovery from the economic meltdown in late 2008 takes shape, analysts and market pundits have bandied the usual list of alphabets -- V-shaped recovery, U-Shaped recovery, L-shaped and so on. And some don't see any recovery at all.

I put together some charts which show how margins and revenues have moved over the last six quarters for some of the leading semiconductor stocks. I chose semis mainly because they are perceived to be leading indicators of a recovery. Take a look at the charts and decide the shape yourself.

The Technology sector has seen robust signs of recovery in the Sep09 quarter with increase in both revenues and profits. For the 292 tech stocks (in the Gridstone coverage universe) which have reported earnings for the Sep09 quarter, total reported revenues (in USD) have declined 9% Yoy. This compares with a 16% decline in Jun09 quarter (Read the Jun09 quarter analysis here and here.)

Sep09 Quarter: Tech Sector Revenue And Profit Growth YOY

Technology sector companies are constantly worried by two things:

1. The next disruptive innovation which could impact their business model
2. How to survive/adapt when (1) happens

As evident from the last 2-3 months, the deal flow in the sector has accelerated with Cisco (CSCO) announcing its next gambit (Read my earlier article on Cisco) and HP (HPQ) responding with its intent to acquire 3Com. HP has been on a diversification spree (I've written about it here) and is probably confused about point 1 (above)!! It seems more interested in purchasing 'insurance cover' (read 'additional revenue streams") rather than bother about the small matter of innovating to succeed.

Cisco Systems (CSCO) released its quarterly results update on Nov 4th, but the more important announcement related to Cisco's future as a 'technology leader' came a day earlier. Cisco announced the formation of a joint venture, Acadia, with leading storage vendor, EMC Corporation (EMC) and the leader in virtualization technology, VMWare (VMW). Clearly, Cisco primed the investor community to 'look' at the future rather than the past results. After all, Cisco has always prided itself in having a better reading of tomorrow's technology needs than most other technology leaders.

Behind all the techno-jumbo and marketing speak of this new initative, the intention seems clear. Move from lumpy equipment sales to more steady revenue streams.

Success Factors, Inc (SFSF), a SAAS (Software as a Service) provider of workforce performance management solutions is discovering that cloud services can also lose steam in a weak economic environment. While on the face of it, a 30% revenue growth rate is impressive, investors will not be pleased with another quarter of operating losses.

Revenue Growth Is Slowing Down Pushing Operating Break-Even Further Down The Road

Sohu.com (SOHU), a leading Internet media and gaming company in China, reported disappointing results on Monday. The stock was already down -- 16% on the day of earnings (October 26th) to $59.9.

What propelled Chinese stocks to their peaks in 2008 is what is pulling them down these days: growth rate expectations.

Western Digital (WDC) can easily rank among the best managed large-cap tech companies today. For the first quarter of the company's fiscal 2010, it reported YOY revenue growth of 4.6% to $2.2 B and operating income grew 36% YOY to $319 M.

WDC Reported A YOY Revenue Increase...

Broadcom (BRCM), a leading communications chip provider, announced a mixed bag of numbers last week. Revenues increased by 21% Yoy in its fiscal third quarter and this nice uptick in revenues boosted operating margins sequentially by ~600 bps to 7%.

Lawson Software (LWSN) reported 1Q10 (Aug09 ending quarter) results last week. The good news is that large deals for enterprise software are making a comeback despite the overall softness in enterprise IT spending. Revenues have declined 11.5% YOY to $169M while operating income has increased to $19M from $6.2M a year ago.

Source: Gridstone Research

As the chart above illustrates, gross and operating margins have improved on a YOY and sequential basis. While this and the increase in large deals is good news, a closer look at revenue mix and other operational data does raise some concerns.

Accenture Plc (ACN) declared its 4Q09 and FY09 results last week. The results and Accenture's 2010 guidance clearly indicates that Accenture is getting prepared for a period of stunted growth and all its expectations in 2007/08 have to be re-adjusted to a 'new' normal. Before we look at the FY09 results, it would be useful to recall the CEO/CFO comments at the beginning of fiscal 2009.

Pamela Craig, CFO in the 4Q08 earnings call (Sep 25, 2008):

As I scanned through articles on Oracle's (ORCL) Aug09 quarter earnings, the consensus seems to be that analysts are disappointed at the decline in overall sales and more importantly the decline in new license sales.

Total Sales and License Sales YOY Change

I continue my analysis of the Jun09 quarter results for the Technology sector. My earlier articles focussed on sector revenue and profitablity and also a snapshot of industry group level comparison on revenue and profits.

In this third part of the analysis, I focus on the company earnings/(expenses) at the non-operating level. The net change in non-operating earnings is around $(1.4B ) in the Jun09 quarter for the Technology sector as a whole (~337 tickers considered). This does looks very small to have made an impact on EPS as the non-operating profits seem to be just ~2.5% of operating profits. So while operating profits plunged by $10.6B in Jun09 quarter, the $1.4B decline in non-operating profits seems less worrisome.

In my previous article, I had looked at the revenue and operating profits, by size of the company, for the Jun09 quarter. In this article, I look at the revenue and operating profit numbers by grouping companies (337 technology sector tickers which have reported through Aug 26, 2009) into three broad industry groups:

1. Hardware - All computer systems, storage/peripherals, electronic instruments, distributors and electronic manufacturing service companies.
2. Software & Services - All packaged software vendors, IT services, data processing services companies.
3. Semiconductors - Semi equipment, design, manufacture and assembly/testing companies. Also includes solar.

YOY Revenue And Profit Change

At a company level, Technology sector companies have probably had the most earnings beats (against consensus estimates) in the Jun09 quarter though revenues have declined for almost every company. I thought that it would be interesting to see what has been the revenue and operating profits change on a YOY basis for the Jun09 quarter.

Since most Tech sector companies felt the real impact of the global recession from the Sep/Dec '08 quarters, the June quarter YOY comparison was probably an 'ideal' case to measure the impact of the recession on both their top-line and bottom-line. The data pertains to ~337 companies which have reported Jun09 (or corresponding quarter) results so far and the numbers are compared to Jun08 results. While the Jun08 quarter had very little impact as a result of the slowdown, the companies have had nearly six months to deal with the slowdown in the Jun09 quarter and make several re-structuring/cost adjustment decisions. Further the consensus opinion among the Tech sector management is that demand has probably hit bottom and can only remain there or go up again.

Looks like the Data Domain acquisition burnt a big enough hole in Net App's (NTAP) profits last quarter. Two quarters back it had to take a $128M impact related to its 'discount' practices as part of the GSA agreement with the federal government and this quarter (Jul09) it has taken a $41M hit after the termination of the Data Domain acquisition. While the $128M is non-cash and is a "reserve" created for future expenses, the merger costs have hit the bottom-line and the cash balances right away. These one-off charges are not small change for a company with ~$100M in quarterly profits (when things are normal, if I may add!!!).

In an earlier article, I had raised some questions on Hewlett-Packard's (HPQ) diversification strategy post their Apr09 quarter results (See "Hewlett-Packard: Is Diversification Strategy Really Working") after acquisitions costs and EDS's poor operating margins seemed to drag down HP's earnings. After HP's 3Q09 results, the key takeaway seems to be that cost reductions as a result of restructuring and integration are finally bearing fruit and the services business could propel HP to earnings growth from the next quarter itself.

(Click To Enlarge all exhibits)

Companies which service the Auto and E&C (Engineering and Construction) industries have had to bear the worst of the recession and Autodesk, Inc. (ADSK) has been no exception.

With the severe downturn that impacted Autodesk customers, the revenue decline has been expectedly sharp.

The top three Indian IT services firms - Infosys (Nasdaq:INFY), Wipro (NYSE:WIT) and Cognizant (Nasdaq:CTSH) - have reported Q2 results and it's been a mixed bag.

CTSH announced Q2 results yesterday (see conference call transcript) and I thought I would revisit the comparison I had done a quarter ago. After last quarter's results, I wrote about how Cognizant will outperform peers in the short-term (see earlier article) but still needs some catching up to do with Infosys and Wipro for long-term outperformance. (I must also add that its Q2 numbers have been much much better than peers, against my own expectations)

Four security software vendors reported quarterly results last week and that provided an opportunity to look at their results and gain some understanding of where this industry could be heading. We look at the four vendors results and do a basic comparison on quarterly and fiscal numbers. The four tickers which we focus on are:

1. Symantec Corporation (Nasdaq:SYMC)
2. McAfee Inc (NYSE:MFE)
3. Checkpoint Software Technologies Ltd (Nasdaq:CHKP)
4. Websense Inc (Nasdaq:WBSN)

While SYMC and MFE have a more comprehensive suite of security products, WBSN is focussed exclusively on internet-security products while Checkpoint is moving from being only internet-security focussed to a more comprehensive security products vendor. This subset therefore has an interesting mix of large-cap comprehensive solution providers and focussed players.

Akamai Technologies, Inc. (AKAM) reported second quarter (2Q09) results which were well short of expectations.