Major U.S. technology companies provided a surprisingly upbeatassessment of future business conditions Wednesday, helping topropel the stock markets to their highest levels in nearly threeyears.
The stellar reports from Intel, IBM and a handful of other techgiants provided a burst of optimism about the economic recovery.These firms provide computers, servers and cutting-edge equipment tocountless companies that generally make such investments only whenthey feel ready to expand.
The technology companies not only reported strong profits overthe past three months but also raised their expectations for thefuture. While some have been reporting good earnings for months,these companies said they are now seeing a wide array of businessesovercome their reluctance to open their wallets and replaceequipment that aged during the recession.
"With the downturn in late 2008 and 2009, a lot of thesecompanies hunkered down and put a Band-Aid on all theirinfrastructure and said, 'We're going to save money,' " said KevinSellers, Intel's vice president of investor relations. "Now, thingsare looking better and they're spending."
Apple, meanwhile, which reported record profits after the marketclosed, said consumers continue to snap up its products as fast asit can make them.
The recovery still faces head winds. Unemployment remains high.Turmoil in the Arab world could disrupt oil supplies. Someeconomists are actually lowering projections for the year, concernedthat prices at the pump, which are close to $4 a gallon nationally,could dampen consumer spending, the most important element ofeconomic growth.
But the news from the tech sector was relief for investors andcarried the rest of the markets higher. The Dow Jones industrialaverage rose 1.5 percent, to 12,453.54, a level not seen since June2008. The tech-heavy Nasdaq composite index jumped 2.1 percent.
Silicon Valley has plenty of reasons to feel good about thefuture. With new, transformative devices such as tablets rapidlycatching on with consumers, businesses investing in cloud computing,and proposals to bring high-speed Internet to the farthest reachesof the country, technology spending appears poised to accelerate.
The sector's significance was reinforced by President Obama'svisit Wednesday to the headquarters of Silicon Valley darlingFacebook, where he discussed his strategies for reducing thenational deficit (on top of wooing Bay Area campaign donors for the2012 election).
"This is a bright spot in a gloomy economy," said MichaelYoshikami, the founder and chief executive of YCMNet Advisors inWalnut Creek, Calif. "We're at a revolutionary point of change wherehow people do business is going to change. We're going to see morewireless and more cloud computing, which is going to requirecompanies to spend money."
This week's best performances came from Intel, IBM, Apple andJuniper Networks - the world's biggest chipmaker, a leadingtechnology consultant, a consumer electronics giant and a majormanufacturer of Internet networking equipment - proving that thetechnology sector's strength is broad-based.
A downside is that many businesses that end up paying forthistechnology often have fewer needs to hire people. One company calledNuance makes a voice-recognition software used by airlines andmedical facilities, Yoshikami said.
"We might not like that, but it means they don't have to hiresomeone with benefits who asks if your flight is international ordomestic," he said. "It's happening with doctors - for the longesttime, they were transcribing their own notes, but now Nuance sellsdictation software for doctors."
IBM and Intel both benefited from businesses overhauling theircomputer systems and from selling expensive equipment and servicesto emerging markets in Asia, Africa and Eastern Europe. The trendtoward cloud computing and mobile devices plays to these companies'strengths.
Intel shares jumped nearly 8 percent after the company predictedcomputer sales would be far better than it had anticipated. IBM'sstock fell about 0.4 percent, even though it raised its earningsoutlook for the full year.
Rodney Adkins, an IBM senior vice president, said in an interviewthat the company's offerings of data storage, encryption for onlinefinancial transactions and analytics are helping firms save moneythat they can use to expand their businesses.
"A number of our clients are seeing real economic benefits forbetter managing their environments, and if they can scale in a wayto manage that growth, that equates to economic savings," he said.
Apple reported nearly $6 billion in profit in the fiscal secondquarter, double its earnings from the same period last year, thankslargely to its iPhone, which became available with Verizon Wireless.It sold nearly 19 million sets over the quarter - the equivalent ofmore than 200,000 a day.
Apple sold 4.69 million iPads, which is far fewer than the 6million to 7 million tablets that analysts predicted. The companysaid that the lower sales were due to supply issues but that it soldevery product it made.
"We're firing on all cylinders," Steve Jobs, Apple's chiefexecutive, said in a statement. "We will continue to innovate on allfronts throughout the remainder of the year."
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