* IBM, Intel, Apple, Microsoft report next week
* Cloud computing seen as big driver in down economy
* PC sales limp along, hurts Microsoft, hardware makers
By Bill Rigby and Noel Randewich
Oct 14 Big U.S. Internet computing companies
should outshine their plainer PC cousins when earnings season
kicks off next week, as corporations and fast-growing Web
players dramatically accelerate their pace of hardware
Corporations are increasingly turning to new technology to
make themselves more productive in a downtrodden global
economy. Meanwhile, a social networking and e-commerce boom is
spurring massive outlays on the giant server factories that
power Internet computing.
That's good news for Intel Corp , which is
supplying more of its microchips direct to companies building
their own servers, and firms like EMC Corp and VMware whose businesses are integral to the storage and
transmission of remote data, known as "cloud computing".
But it is less of a boon for traditional hardware makers
such as Dell Inc and Hewlett Packard Co , which
find themselves selling PCs at low margins and struggling to
cope with an accelerating migration to smartphones and
"The area of strength is still data centers, the cloud,"
said Kevin Cassidy, chip analyst at Stifel Nicolaus. "You have
Facebook building out their data centers ... five football
Facebook, like online leaders Amazon.com and
China's Baidu , is buying masses of equipment to fill
two major data centers in Oregon and North Carolina, but going
straight to component makers like Intel for parts, rather than
buying whole servers from HP or IBM .
"It's server demand, specifically emerging-market server
demand," said Evercore Partners analyst Patrick Wang,
identifying growth areas. "Companies tied to the cloud and data
centers are doing relatively better, there's no question."
PCS STAY ON SHELVES
Apple Inc , which reports on Tuesday, continues to
defy the economy and astound Wall Street by luring ever more
consumers to buy its newest gadgets.
But most other hardware companies are limping along, with
little sign of a revival ahead.
Worldwide PC sales barely rose more than 3 percent last
quarter over last year's numbers, according to the major
research firms, as consumers stick with old machines or buy
smartphones and tablets instead.
Gartner last month cut its annual PC sales growth forecast
to 3.8 percent, down from its previous projection of 9.3
"I would not want to be in the hardware business right
now," said Michael Yoshikami, CEO of fund manager YCMNET
Advisors. "Cloud companies are going to continue to accelerate,
but PC companies generally are going to continue to suffer."
The knock-on effect hurts Intel's traditional business of
supplying chips for PCs, but it especially hits Microsoft Corp , which still relies on PC sales to keep its core
Windows and Office products growing, despite making recent
inroads into the cloud market with its server software and
Azure developer platform.
"I expect little or no growth from the consumer and I just
want to know that companies are still spending for the
refurbishment of the existing PC fleet," said Kim Forrest,
senior analyst at money manager Fort Pitt Capital Group, on
"If you are not hiring people, you don't need to buy that
extra PC. If it's still kind of working, you'll suffer through
till the company has more money."
Wall Street is expecting a modest 9 percent rise in IBM's
quarterly net profit when it reports on Monday, and a 6 percent
rise from Microsoft on Thursday. Intel, reporting on Tuesday,
is expected to post a 12 percent increase.
Apple, launching sales of its newest iPhone on Friday, is
expected to post a whopping 57 percent jump in net profit.
Only the smaller cloud-focused tech companies look close to
rivaling that kind of growth rate.
VMware, the small but fast-growing leader in projecting or
"virtualizing" operating systems onto computers via the
Internet, also reports earnings on Monday, with analysts'
predicting a 30 percent jump in net profit.
"VMware is making a legitimate move to become the next
major enterprise software stack," said Jefferies & Co analyst
Ross MacMillan, in a research note to clients earlier this
month, putting a "buy" recommendation on the stock.
"It is a bold strategy, but one with significant rewards if
successful," said MacMillan.
The world's biggest data storage equipment company, EMC,
which owns the majority of VMware, reports on Tuesday, with
analysts expecting a 27 percent jump in net profit.
"I think companies with higher exposure to the cloud will
do better," said Cassidy at Stifel Nicolaus, citing small
newcomers like Mellanox Technologies Ltd , which
builds high-end networks connecting servers and storage
"You build these new high-speed servers and you need to
have highways or networks that keep them connected at higher