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These “Lean Machines” Will Lead to Fat Profits...

|Includes: AAPL, CSCO, DELL, GLW, GOOG, HPQ, IBM, INTC, Microsoft Corporation (MSFT), ORCL, XRX

The past few weeks have been a steady stream of quarterly earnings reports for the Technology industry, and the sun seems to be rising on this sector despite the skeptics.Although not every company beat earnings estimates, a large percentage of Tech companies were able to posted better-than-expected earnings for this quarter; not to mention that we are still waiting on a couple of heavy-weights that are due out next week.

Down to the Details

The skeptics of the tech industry only have their eyes focused on the fact that some companies missed estimates but not why they missed them, which seems to be clouding their outlook. To be more specific, over 70% of the Tech companies were able to post better-than-expected earnings, and many analyst are not taking this into consideration. I mean compare that to last year when only a little over 60% were able to pass expectations. Not too shabby of an increase if you ask me.

Of course, Apple (NASDAQ:AAPL) jumped out of the gates with revenue up 61% thanks to the iPhone 4 and the new iPad tablet hitting the markets. Apple (AAPL) posted net income up 78% when compared to last quarter, and now you can see why Apple {AAPL} is helping to drive the industry recovery.

Economic Factors

There are many economic factors that need to be weighed in as well in order to avoid misunderstanding these tech earnings reports.

After the 2008 financial crisis, many companies were forced to make budget cuts. One of the first areas to be skimmed was payroll. Now, we are starting to see the hiring plans by corporations increase significantly. How does this affect the tech earnings? Well, it's a positive move for some, while a negative move for others. In Google's (NASDAQ:GOOG) case, it was negative on July 15th. Google (GOOG) missed analysts' targets partly due to a major increase in payroll. This year alone, Google (GOOG) added 1,200 new employees to the books causing operating expenses to come in higher-than-expected while in turn pulling down their earnings per share (NYSEARCA:EPS) below the target.

On the other hand, Intel (NASDAQ:INTC) had the largest quarterly net income in over a decade which led the company to its best quarter in their 42-year history. Intel (INTC) drummed up $10.8 billion in revenue, up 34% year-over-year, and landed an EPS of 51 cents. This incredible rise signifies the fact that companies have started to purchase new computers either for their new hires or replacements for their 4-year old computers. Plus with Intel's state-of-the-art facilities, this doesn't hurt production cost either. No wonder they had a killer earnings report.

Tech Poised to Soar

With companies incorporating Intel's expensive chips into their systems, its obvious businesses are not being tightfisted when upgrading employees' personal computers, as we are living proof over here at Global Profits Alert. Here's just another signal that corporations are starting to loosen the strains on the budgets which leads me to my factor, growing demand accompanied by lax budgets. Manufacturers have started to notice a strong demand. Microsoft Corp. (NASDAQ:MSFT) reported record quarterly revenue of $16.04 billion, up 22% from the prior year, while increasing its EPS by 50%, when compared to the prior year.

These astounding numbers were a result of strong sales of Office 2010 and Windows, largely due to their corporate clientele. Xerox Corp. (NYSE:XRX) was another company who benefitted from corporate spending as net income jumped 62%, and with the recent acquisition of Affiliated Computer Services, Xerox (XRX) had the ability to raise guidance. Corning Inc. (NYSE:GLW), who produces glass for mobile devices and flat-panel televisions, also posted a strong quarterly report due to strong sales in LCD glass as emerging markets, particularly China, take a notable interest in LCD televisions.

Tech Poised to Soar

Another factor is the currency changes. As we saw the dollar rise, driven by fear of the euro deteriorating if European governments defaulted on their high debt, companies like Google (GOOG) and IBM Corp. (NYSE:IBM) were affected for the worse. Although IBM (IBM) was able to meet earnings targets for the quarter while raising its guidance, revenues fell short of Wall Street's expectations due to projects being in handled in other currencies. As the corporation converts other currencies back to the dollar, revenues become worth less than their initial estimates.

Waiting Game

As I mentioned earlier, there are still a few contenders with earnings reports due out soon.

August 11th: Cisco Systems, Inc (NASDAQ:CSCO)
August 19th: Dell, Inc. (DELL) & Hewlett-Packard Co. {HPQ}
September: Oracle Corp. (NYSE:ORCL)

Wrap Up

With corporate earnings near an all-time high, businesses are "lean machines" with the budget cuts from last year, and now they're in a position to spend with the goal of improved efficiency. Gartner, a market research firm, predicts a 3.9% increase in worldwide IT spending for 2010. Also, we have started to see bank lending standards lax which could create further business loan opportunities for small to mid-size firms as well. I'm bullish on the tech industry as we wrap up the remainder of this year and lead into 2011.

Committed to High Tech and High Profits,
 

Jim Trippon


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