Business Tech

Third-quarter sales of servers across the globe showed a 17.3 percent decline from the same quarter in 2008, sagging to $10.4 billion, according to IDC's Worldwide Quarterly Server Tracker.

But server shipments improved, falling only 17.9 percent for the quarter, compared with 30.1 percent in the second quarter, noted the IDC report released Wednesday. Even more promising, shipments grew at a healthy 12.4 percent over the second quarter, the market's largest sequential quarterly gain since 2005.

All three server segments tracked by IDC--volume, midrange enterprise, and high-end enterprise--saw lower third-quarter sales compared with the same quarter last year. Revenue for midrange enterprise servers fell 23.4 percent, while sales of high-end enterprise servers dropped 19.3 percent.

But revenue for volume servers, the lower end of the market, improved over the second quarter and experienced their lowest drop since the third quarter of 2008.

"The worldwide server market exceeded expectations in the third quarter with improving x86 server demand leading the way, which was driven in part by the infrastructure refresh momentum that is building in many geographies," said Matt Eastwood, IDC's group vice president of Enterprise Platforms, in a statement. "In fact, x86 server revenues experienced their largest sequential quarterly revenue increase in nearly five years."

(Credit: IDC)

Among the major players in the server industry, IBM and Hewlett-Packard vied for first place in both sales and market share with a statistical tie. Big Blue took a 31.8 percent slice of the market, with a 12.9 percent drop in third-quarter sales to $3.3 billion. HP grabbed a 30.9 market share as its revenues fell 16.8 percent to $3.2 billion.

Third-place Dell saw its sales decline only 6.8 percent to $1.4 billion, helping it capture a 13.5 percent share of the market.

With its future cloudy, pending regulatory approval of its takeover by Oracle, Sun Microsystems suffered a 35 percent drop in third-quarter sales to $778 million. Reports have surfaced that IBM and HP, among others, have taken advantage of the uncertainty surrounding Sun to lure over several of its customers.

Bringing up the rear of the top five was Fujitsu, which saw an 8.2 percent drop in sales to $594 million, carving out a 5.7 percent slice of the market, an improvement over its position from last year's third quarter.

Though optimistic that the market will continue to improve in the fourth quarter and beyond, IDC is still waiting to see how the recovery plays out.

"IDC believes that platform migration is once again gaining steam in the market and the post-recession server deployment patterns will establish the technology agenda in the datacenter for the next business cycle," said Eastwood. "For server vendors, after five quarters of market contraction, the next few quarters will be critical to determining the technology platform winners and losers in the years ahead."

The Mozilla Foundation's revenue grew 5 percent to $79 million in 2008, with its Firefox search-ad deal with Google still the biggest benefactor, the organization said Thursday.

The figure is notable for an open-source effort, but the growth tapered off significantly. For 2007, by comparison, the Mozilla Foundation reported $75 million in revenue, a 12 percent increase over 2006.

Mozilla Chairman Mitchell Baker revealed the latest Mozilla figures on her blog Thursday.

Update: for further details and commentary from Baker, check this follow-up interview.

Firefox has won over about a quarter of the world's users of Web browsers, taking most of that share from Microsoft's still dominant Internet Explorer. The browser faces new challenges, though, in the form of newcomer Google Chrome and Microsoft's resurgent effort to improve Internet Explorer. On Wednesday, Microsoft showed off some elements of the forthcoming IE 9, and Thursday, Google released the source code underlying its Chrome OS, a browser-based operating system for lower-end computers.

Google supplies "the bulk" of the Mozilla Foundation's revenue through a deal that currently lasts through 2011, the foundation said. Under that deal, people performing searches through Firefox using the default Google search engine see and sometimes click on search ads at Google; Google and Mozilla share the resulting revenue. In 2007, Google supplied 89 percent of Mozilla's revenue.

Google isn't the only revenue source, though. Here's how Mozilla described its sources in an FAQ:

"The majority of this revenue is generated from the search functionality in Mozilla Firefox from partners such as Google, Yahoo, Amazon, eBay, and others. Mozilla takes in additional revenue from donations, online affiliate programs, the Mozilla Store, and income on our invested assets. In 2008, we expanded our Firefox partnerships with new firms such as Yandex (Russia Search), Canonical (Ubuntu), and Nokia (Mobile).

The chip recovery is under way, with quarterly sales forecast to increase year-over-year for the first time in 2009, according to a report from market researcher iSuppli on Tuesday.

Revenue from chip sales is expected to rise by 10.6 percent in the fourth quarter compared to the same period in 2008. This would mark the first time this year that revenue has risen compared to the same period a year earlier, according to Dale Ford, senior vice president, market intelligence, for iSuppli.

"The seeds of the current recovery were sown in the second quarter," said Ford. At that time, manufacturers began to report positive book-to-bill ratios, indicating future revenue growth. This was followed by more sequential revenue growth in the third quarter, according to Ford.

Semiconductor inventories returned to more normal levels in the third quarter after chip suppliers shed stockpiles, he added.

Earlier this month, chip giant Intel said third-quarter revenue was down only 8 percent year-over-year, an improvement over the 15 percent and 26 percent year over year declines in the second and first quarters respectively. Intel also indicated that it expects future growth. "We're finished with the cutting phase of our efficiency effort and now in the growth phase of that efficiency effort," said Intel's chief financial officer Stacy Smith at that time.

Overall, it's been a tough year, however. Global semiconductor revenue is set to contract by 16.5 percent in 2009, following a 5.4 percent decrease in 2008.

And iSuppli has added a good dose of caution to its report. Though sequential quarterly increases in revenue will continue into 2010, sales growth will not be sufficient to lift semiconductor revenue back to pre-recessionary levels until the 2011-2012 time frame, according to Ford.

And there are troubling indicators such as the climbing U.S. unemployment rate, which reached 9.7 percent in August and is projected to exceed 10 percent at its peak, which will continue to constrain consumer spending, Ford said.

Updated at 3:10 p.m. PDT: adding comments from CEO Paul Otellini and CFO Stacy Smith.

Intel's third-quarter revenue jumped $1.4 billion over the second quarter, though year-to-year revenue and profit comparisons were down.

The world's largest chipmaker is struggling to lead the PC industry out of a brutal downturn that saw demand collapse earlier in the year.

Revenue came in at $9.4 billion, beating Wall Street expectations, which hovered at just more than $9 billion. Revenue, however, was down from the $10.2 billion reported in the year-earlier period.

On a year over year basis, revenue for the third quarter was down 8 percent, Intel said in a statement, adding that this was an improvement over the 15 percent and 26 percent year over year declines in the second and first quarters respectively.

Intel shares were up more than 5 percent after hours, trading as high as $21.45 form a regular closing price of $20.49.

"Overall (corporate) enterprise remains weak," said CEO Paul Otellini in the company's earnings conference call.

Profits were $1.9 billion, or 33 cents per share, down from the third quarter of last year, when Intel posted a profit of $2.0 billion, or 35 cents a share. But the 33 cents beat analyst forecasts, which were 28 cents per share.

The chipmaker's gross margin for the quarter, a crucial earnings indicator, was 57.6 percent, higher than the company was projecting.

Looking ahead, Intel expects revenue to hit $10.1 billion, "plus or minus $400 million," in the fourth quarter, and gross margin to improve to 62 percent, plus or minus 3 percentage points.

Intel also said the average selling price for microprocessors was slightly down sequentially.

Inventories were also down $315 million sequentially. Intel chief financial officer Stacy Smith said inventories were a little lower than Intel would like and that Intel intends to increase inventories in the fourth quarter.

Updated at 2:30 p.m. PDT: adding statements from Dell.

Intel and Dell are indicating that PC demand may be increasing but it's not clear how sustained or strong this trend is.

The news Friday that Intel raised guidance is not a surprise, according to Ashok Kumar, an analyst at investment bank Collins Stewart. "It's in line with seasonal trends and reflects strong back-to-school build in the PC food chain," he said.

Kumar added, however, that the strength of actual sales to end users of PCs won't be known until later. "The ramifications for Intel is that they'll continue to see benefits from supply chain rebuilds but where the rubber meets the road is the actual back-to-school sell-through."

Broadpoint AmTech analyst Doug Freedman also cautioned that though PC "build rates are accelerating" and "inventory replenishment" is taking place, "inventory replenishment means that there is no inventory so they have no choice but to build," Freedman said.

But he added that Intel's guidance "affirms the thesis that PC recovery is under way. Consumer now, Enterprise next." Recovery is initially driven by consumer PC demand and then by corporations, usually one to two quarters later, according to Freedman.

Both Freedman and Kumar stated emphatically that the Windows 7 launch, at this point at least, is not having as big an impact on build rates as previously expected.

Related to Windows 7 is the expectation that latent demand will kick in for replacing old PCs at companies--an expectation that Intel and Dell have cited in earnings-related discussions. But don't expect blockbuster replacement numbers, according to Kumar. "Yes, you have an aging installed base but we don't expect anything more than 20 or 25 percent to come up for replacement," said Kumar.

Adding to the uncertainty are Dell's second-quarter results, which were not that encouraging, according to Kumar. "Most of the revenue stream came from the public sector. Enterprise and consumer remains weak," he said, referring to Dell's profit, which was down 23 percent, and stimulus-package funds that flow to the public sector.

And Dell made this cautious statement on Thursday: "In the third quarter, the company expects seasonal demand improvements from the Consumer and U.S. federal government businesses...Dell believes a refresh cycle in commercial accounts is more likely to occur in 2010...(but) the company continues to see pressure in the form of component costs and areas of aggressive pricing in the near term, and continues to take actions to offset these items."

"The problem for the industry at large is that ASPs (average selling prices) are dropping like a rock," said Kumar. And on a macro level "employment is still weak and consumer discretionary spending is under pressure," according to Kumar.

This was originally posted at ZDNet's Between the Lines.

Intel on Friday raised its guidance for third-quarter revenue, citing stronger-than-expected demand for microprocessors and chipsets.

Revenue is now expected to be $8.8 billion to $9.2 billion, compared to the previous guidance of $8.1 billion to $8.9 billion. Analysts had been expecting $8.55 billion in revenue. The company also said it expects gross margins to be in the upper half of the previous range of 51 percent to 55 percent.

The news comes on the heels of Dell's better-than-expected earnings report Thursday. The company said there were signs of stabilization in the quarter and that it expected "seasonal demand improvements" but still pointed to 2010 before it sees a refresh cycle from the enterprise.

Shares of Intel were on the rise, up more than 5 percent in early trading.

The company is scheduled to report its third-quarter results on Oct. 13.

SAP on Wednesday reported a 4 percent gain in earnings for the second quarter despite lower sales.

For the quarter ended June 30, the business software giant netted 423 million euros ($600 million) compared with 408 million euros for 2008's second quarter. The company attributed the gain to cost cuts and to stronger growth in its profit margin, the net difference between sales and earnings.

"Despite the challenging economic conditions, the strength of our business model combined with a strong cost discipline has proven itself once again by enabling us to report another quarter of strong operating margin growth," said SAP Chief Financial Officer Werner Brandt.

Hurt by the global downturn, overall revenue dropped 10 percent to 2.6 billion euros from 2.9 billion euros a year ago. Software sales were hit especially hard, falling 40 percent to 543 million euros from 898 million euros in the year-ago quarter. SAP noted that 2008's second quarter was prior to the current economic recession.

(Credit: SAP)

Though the company didn't offer sales and earnings estimates for the full year, it did boost its forecast for operating margin for 2009. Excluding nonrecurring expenses, SAP now expects its annual operating margin to range from 25.5 percent to 27 percent, up from its earlier estimate of 24.5 percent to 25.5 percent, which it provided in its first-quarter report.

As part of its cost-cutting efforts, SAP announced earlier this year that it would slice about 3,000 jobs globally by the end of 2009.

The company has also been trying to expand its reach through acquisitions. In May, SAP picked up carbon management firm Clear Standards. Last week, it announced it would acquire SAF AG, a provider of global forecasting software for the retail market.

On the back of Intel's better-than-expected financials, an iSuppli analyst said Monday that chip inventories will recover, driving up sales in the second half of the year.

Following positive financial guidance from Intel and other chipmakers, global semiconductor revenue will increase by a sharp 10.4 percent in the third quarter and by 4.9 percent in the fourth quarter, according to Carlo Ciriello, a financial analyst for iSuppli.

This expected recovery comes on the heels of four consecutive quarters of chip inventory declines, which took their sharpest dive in the first quarter of this year, plunging by 15.1 percent. iSuppli forecasts that second-half inventories will increase modestly by 5.1 percent in the third quarter and 1 percent in the fourth.

"Falling demand in the first half of 2009 prompted a swift inventory correction among chip suppliers," said Ciriello, in a statement. "Companies dialed down (factory) utilization levels and cleared swaths of inventory by reducing Average Selling Prices (ASPs) in anticipation of continued depressed demand," he added, describing how the sluggish market conditions in the first half should set the stage for an inventory correction in the second half.

FBR Capital Markets analyst Craig Berger said in a research note Monday that because Intel's forecasts were much better than investors anticipated three months ago, he expects global demand to recover as "the world gets back to normal." Berger's comments appeared in the Wall Street Journal on Monday.

Oracle announced on Tuesday lower fourth-quarter sales and earnings but was encouraged as results beat expectations.

For the fourth quarter of its fiscal year, which ended May 31, the database giant earned $1.9 billion, or 38 cents a share, versus $2 billion, or 39 cents, a year earlier. Sales fell 5 percent to $6.9 billion, compared with $7.2 billion a year ago. However, Wall Street had been predicting revenue of only $6.47 billion.

Oracle noted in its report that results were hurt by the lower value of foreign currencies versus the U.S. dollar. Without that impact, fourth-quarter income would have grown 9 percent to 42 cents a share.

The company was also pleased with its non-GAAP results, which discount certain nonrecurring costs.

"We executed substantially better than we expected on both the top and bottom line for the quarter," Oracle CFO Jeff Epstein said in a statement. "We grew Q4 non-GAAP operating margins by a faster than expected 240 basis points to over 51 percent. That helped us generate $7.7 billion in free cash flow for fiscal 2009."

For the full year, earnings per share rose 3 percent over the previous year to $1.09, while total net income inched up 1 percent to $5.5 billion. Revenue in 2009 hit $23 billion versus $22 billion for the preceding year.

"Adjusted for the substantial movement in the U.S. dollar exchange rate this fiscal year, which is beyond our control, we grew non-GAAP earnings per share by 19 percent for the year," Oracle President Safra Catz said in a statement. "That's an amazing achievement given what's been happening in the global economy over the past twelve months."

Results were boosted by heavy use of Oracle's business applications over those of archrival SAP, according to Oracle.

The quarter was a momentous one for Oracle, which in April announced its intended buyout of Sun Microsystems, due to be voted on by shareholders July 16.