Second quarter earnings season is quickly winding down. There are only roughly 100 firms in the S&P 500 Index to report, and many will be reporting this week. The technology space will see a few companies release their most recent results, though all of the major firms have already weighed in with their most recent business trends and expectations for the full year periods. There was also an update on a large legal spat between two industry bellwethers that could result in a hefty payment for one of the parties.
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Credit rating firm Moody's weighed in Monday with its opinion on a legal spat between tech giants Hewlett-Packard (NYSE:HPQ) and Oracle (Nasdaq:ORCL). It concluded that a decision by a California Superior Court judge that concluded Oracle was contractually bound to keep offering HP's software. The software runs on HP's Itanium-based servers. Moody's believed that the decision extends the life of this sever platform and is a credit negative for Oracle because it could be required to pay hefty damages to HP. It estimated the potential damages as high as $4 billion, which means the decision could end up being a credit positive for HP. It did estimate that the payment could pretty easily pay the $4 billion given it generates around $12 billion in annual free cash flow. Nonetheless, it would still be a big payment, though there is still plenty of time until the dispute is eventually settled.
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On Tuesday, IT services firm Rackspace Hosting (NYSE:RAX) is expected to report earnings. Rackspace helps clients host websites and utilize related technology for cloud-based computing services. Given the rapid growth in the industry, analysts project quarterly sales growth of nearly 30% and earnings per share of 18 cents that would represent year-over-year growth of approximately 40%. Tuesday will also see two Internet-related housing market providers report their recent results. The consensus is for Zillow (Nasdaq:Z) to report over $27 million in sales but negligible earnings of 4 cents per share. Tree.com (Nasdaq:TREE) will also report but currently has negligible street coverage, which is likely due to its small-cap market capitalization of less than $150 million.
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Electronic distributor Avnet (NYSE:AVT) is expected to report results on Wednesday. The firm has been struggling with revenue growth and is projected to report a more than 5% decline to around $6.5 billion during the quarter. Profits could also condense slightly to $1.08 per share. On the media side of the spectrum, Liberty Interactive Corporation (Nasdaq:LINTA) and Dish Network (Nasdaq:DISH) are also on deck on Wednesday.
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The Bottom Line
In general, firms in the technology industry are seeing much higher sales growth rates when compared to other industries. The growth of online services and cloud computing in particular are in the midst of a multi-decade secular trend that is seeing advertising and business services move to the web. Hardware sales are proving to be more of a mixed bag, as the tepid results at Avnet are indicating. But overall, the space is worth tracking closely given it is one of the few industries to report solid growth in a difficult overall global economic climate.
At the time of writing Ryan C. Fuhrmann was long shares of HP since 2010 but did not own shares any other company mentioned in this article.