Technology earnings releases continue to trickle in, but there won't be much activity until the calendar third quarter ends on September 30. In the meantime, a number of smaller firms, including a number in the communications equipment industry, are set to report this week. M&A activity also remains brisk compared to other industries. The most recent deal saw a tech distribution giant look to take advantage of the European economic downturn by snapping up a handful of smaller rivals.
On September 5, Tech Data Corp. (Nasdaq:TECD), which distributes technology products such as computer systems, networking gear and software, announced it would be purchasing several other distribution firms from Specialist Distribution Group, a privately held firm in the U.K. The purchase price is $350 million and is for a business that reported $1.75 billion in revenues over the past 12 months. Moody's provided its opinion on the transaction on Monday, finding it to be a credit negative for Tech Data.
Despite trying to swoop in and acquire European rivals on the cheap, there is risk because the region is being hit by a sovereign debt crisis and potentially severe economic contraction. Moody's negative stance is based on the increased debt Tech Data will shoulder to complete the deal, and it sees potential integration challenges as Tech Data seeks to expand "into the higher margin data center segment" and move "higher up the customer value chain." Overall, the move makes sense and helps Tech Data diversify away from embattled tech giant Hewlett-Packard (NYSE:HPQ), which accounts for roughly a quarter of its annual revenues.
On Monday, prior to the market opening, RF Industries (Nasdaq:RFIL), which is a small-cap firm that sells communications equipment such as coaxial connectors and cable assembly products, reported solid third quarter results. Sales jumped 51% to about $7.5 million and profits hit almost 750,000, or 10 cents per diluted share. This represented a significant earnings jump from $65,000, or one cent per diluted share in last year's third quarter.
On Tuesday, September 11, another small-cap communications equipment provider will report its results. Frequency Electronics (Nasdaq:FEIM) is set to report its first quarter results in the morning and will hold an earnings conference call at noon. No analysts are currently detailing sales or profit projections for Frequency.
Cloud-computing provider Saba Software (Nasdaq:SABA) is set to report on Wednesday. Analysts project sales growth of 6%, total sales of $32.2 million, and a loss of 4 cents per share. China Finance Online (Nasdaq:JRJC), one of China's largest providers of investment research and brokerage services for individual investors, plans to report its most recent results on Thursday. Once again, there are no analysts currently providing sales or earnings expectations for the firm.
The Bottom Line
It will be another few weeks until the bellwethers in the technology space report their third quarter results. In the meantime, a number of smaller firms will continue to report their results, and deal flow will likely continue as the larger players look to move into faster-growing markets, such as cloud computing.
At the time of writing, Ryan C. Fuhrmann was long shares of HP but did not own shares any other company mentioned in this article.