Technology earnings releases continue to trickle in, but the quarterly update flow will continue to be slow through September until the end of the third quarter occurs. For the time being, the industry continues to be driven by merger and acquisition announcements and a few smaller company earnings releases.
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Recently, technology services and software giant International Business Machines (NYSE:IBM) announced it was acquiring Kenexa (NYSE:KNXA), a human resources software firm. The purchase price was $46 per share, or $1.3 billion. IBM detailed that this will beef up its social media capabilities and the company will be folded into its software and information technology consulting operations. Kenexa specializes in providing software as a service (SaaS), or online-based software that helps a company carry out its key human resources functions.
Ratings firm Moody's provided its opinion on the transaction and concluded it was a credit positive for IBM. The purchase price was rich and represents a P/E of 34 off of Kenexa's earnings expectations for the coming full year. However, the price-to-sales multiple was 3.5, which it saw as more reasonable given similar software deals have recently taken place at sales multiples between four and six. For IBM, it can easily handle the purchase price. It should generate around $10 billion in free cash flow for the year and currently has more than $11 billion in cash and cash equivalents on its balance sheet.
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On September 4, prior to the stock market opening following the Labor Day weekend, bandwidth management firm Sycamore Networks (Nasdaq:SCMR) reported its fiscal third quarter earnings. Revenue was flat at $11.9 million and its reported net loss rose to $5.1 million, or 18 cents per share, up from a loss of $4.1 million, or 14 cents per share in last year's third quarter.
On September 5, electronics retailer Conn's (Nasdaq:CONN) is set to release its second quarter earnings results. Analysts currently project solid sales growth of nearly 12% and total sales of almost $206 million. The current profit expectation is 35 cents per share, which would be more than double the 17 cents Conn's reported in last year's second quarter.
Infoblox (NYSE:BLOX), which sells a device to corporate clients that helps them assign Internet addresses to its employees and related corporate networks, is set to report after the market close on September 6. Analysts project sales of nearly $46 million and earnings of only a penny per share.
RF Industries (Nasdaq:RFIL), a provider of radio, wired and wireless communications equipment, is set to report its third quarter earnings results on September 7. No analyst currently covers the stock, largely in part because its market capitalization is quite small at below $30 million. However, it does currently sport a dividend yield of 5.1%. Last year, it reported third quarter sales of $5 million and earnings of a penny per share.
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The Bottom Line
The larger technology firms continue to seek acquisitions to beef up their offerings in SaaS and other cloud-computing capabilities. Look for smaller firms to continue to be snapped up by the leading, cash-rich firms in the industry. Third quarter earnings season will kick off in about a month, with smaller firms reporting up until then.
At the time of writing, Ryan C. Fuhrmann owns shares of IBM.