There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.
Cisco Reports Solid Performance
Cisco (CSCO – Free Cisco Stock Report) reported healthy performance for the January quarter. The company posted revenues of $11.9 billion, an increase of roughly 7% on a year-to-year basis. Share earnings advanced about 13%, to $0.53. Cisco benefited from a healthy sales balance and prior restructuring activity. The top line increased approximately 8% on the Product side, while revenues advanced roughly 5% on the Services side. Overall product orders increased roughly 5%, on a year-over-year basis. Wireless product sales increased 18%, and the Switching business experienced top-line growth of 11%. Growth in router sales was quite modest, though high-end router sales advanced at a faster pace.
Hewlett-Packard Shares Fall Following First-Quarter Earnings Release
Shares of Hewlett-Packard (HPQ) declined following the company’s first-quarter earnings release (for the period ended January 31st). Revenues of $26.8 billion fell roughly 5% (2% on a constant-currency basis), year-over-year. Share earnings of $0.73 nearly matched the prior-year tally of $0.74. Overall performance was hurt by a strengthening dollar. The consumer personal system line experienced fairly modest growth, thanks to strength in notebook computers. Meanwhile, at the enterprise group, an increase in industry standard servers was roughly offset by declines in business critical systems, networking, and technology services. Elsewhere, printing products revenue fell 5%.
The company expects currency headwinds to pose a greater challenge going forward. Efforts to re-price products and improve productivity ought to provide a partial offset. However, costs associated with the upcoming separation of the company into two publicly-traded entities will likely run greater than expected. As such, we have reduced our bottom-line call for the current year.
Hewlett-Packard has agreed to acquire Aruba Networks (ARUN) for $2.7 billion ($24.67 per share). Aruba is a provider of wireless-network infrastructure used by hotels, universities, and shopping malls. This move should bolster Hewlett-Packard’s presence in the enterprise mobility and networking markets. The deal, which remains subject to shareholder and regulatory approvals, is expected to be completed in the second half of HP’s fiscal-year 2015 (ends October 31st).
eBay’s (EBAY) digital payments business PayPal has agreed to buy Paydiant for about $280 million. Paydiant helps retailers to develop mobile-payment options and customer-loyalty programs. This move will allow eBay to broaden its mobile offerings for merchants. It will allow PayPal’s customers to develop their own mobile applications to increase the use of payments through wireless devices. Efforts by the company to bolster its already-strong payments operation are encouraging, given increasing competition in the space from rivals such as Apple (AAPL) and Google (GOOG). eBay is expected to spin off PayPal in the second half of the year.
FCC Approves Net Neutrality Rules
The Federal Communications Commission (FCC) has approved a set of net neutrality rules aimed at preventing providers of high-speed Internet access from blocking certain Web sites or auctioning off faster traffic speeds to the highest bidders. As a result, broadband providers will now face some of the same federal regulations that telephone companies do. Proponents of net neutrality believe it preserves current Internet freedoms, and the lack of it would allow service providers to extract payment from content providers, charges that could ultimately be passed on to consumers. Prominent supporters of net neutrality include Google, Netflix (NFLX), IAC's (IACI) Vimeo, YAHOO!'s (YHOO) Tumblr, Mozilla Foundation, and the American Civil Liberties Union (ACLU).
Naturally, cable and telecommunications companies have strongly criticized the rules, which they believe interferes with their business. Opponents claim that net neutrality would deter investment into broadband infrastructure. They have argued that companies whose services use a lot of Internet traffic should share in the cost of expanding and maintaining the infrastructure that delivers the content to consumers. Leading opponents have included Verizon Communications (VZ – Free Verizon Stock Report), AT&T (T – Free AT&T Stock Report), International Business Machines (IBM – Free IBM Stock Report), and Cisco Systems. The aforementioned rules also apply to wireless carriers, as well. Still, it remains to be seen whether this issue has been resolved with finality. Challenges to the new rules in the form of litigation (from affected companies or trade groups) or superseding legislation (from Congress) may well materialize in the coming weeks or months.