Rethink 50 shows strength and grows over 8% during election month

Rethink IT, Dec, 2004

The 40% rise in Apple's share price over the past month is almost entirely, though not quite, down to its achievements in the online music business, so perhaps it's not worth going on about it too much, but in a stock market that has grown 12% these past four weeks on Nasdaq surge after surge, it still stands out as a beacon of approval from Wall Street.

And along with that approval will almost certainly come a belief that Apple PCs and servers and storage arrays and printers and wireless Lans are all okay to buy, something that we've said in past issues of Rethink IT and something that Apple management says it is experiencing.

What is particularly appealing, which we quite like pointing out, is that Apple currently has the world's most powerful general purpose microprocessor (you can argue about it, but it certainly has a case), an IBM PowerPC G5 variant, running the oldest open source operating system, the Berkeley BSD version of Unix, over wlqch Apple runs its own operating environment. IBM has proven time after time that the big servers that it has put together with this chip are easily the match of anything driven by Itanium or Opteron chips, primarily because of its multi-core architecture, and it is only a matter of" time before someone else joins Apple in offering the chip.

FOLLOWING SUITE?

We wonder how long it will be before other PC companies get the message and feel compelled to offer a Linux or BSD-based PC for the desktop built around a Power 5? Could HP every bring itself to? We don't think so, but others may, perhaps even Dell.

Perhaps that's one of the clouds that hangs over Intel's share price, along with the other great cloud, AMD. But Intel is certainly in the doldrums these days and raised only 8% this month, still hampered by chip uncertainties.

AMD rose 39% during the past month, really on the momentum from its last results and the fact that it has convinced Merrill Lynch that it has at least a year of growth left in it before Intel attempts to swat it back into its place again. Merrill put out a buy note last week.

In all, the Nasdaq composite raised 12% during in the month, explained by relief after the uncertainty of a US election, and driven further by a Wall Street that sees President Bush as good for business, or at least good for big business.

AHEAD OF THE MARKET

In all, 18 of the Rethink 50 outgrew the market and come up with gains greater than 12% during the month. Growth at McAfee was next in line after Apple and AMD, impressing with a smart set of figures that showed hardly any fall in revenues, and a huge margin, given the sale, early in the quarter of its Sniffer business for $235m.

Sniffer Technologies was sold to Network General Corporation, a company formed by Silver Lake Partners and Texas Pacific Group.

Quantum and Sun rose sharply this month, but that's mostly to counteract recent falls, while Checkpoint, after one quarter of financial performance less than its usual sell began growing once more and its shares bounced back.

With 33 companies reporting this month, almost anywhere you look in the Rethink 50 there was something positive to report, with only four of those reporting a loss for the quarter.

Of course, McAfee with chat asset sale, and Checkpoint (which always has such a fantastic margin, dominating the firewall market as it does) were the highest margin operations at over 50% for the quarter.

But, more surprisingly, was the 31.6% performance by Microsoft, the next most profitable company by margin out of those reporting this month.

Microsoft came up with revenue of $9.19bn, up 12%, and with an operating income of S4.05bn, which netted out at $2.90bn net income--probably its highest ever.

The credit went to its bread and butter commercial server and desktop business and Microsoft said it would continue to grow revenue faster than expenses.

Server and tools revenue grew 19% at Microsoft, driven by broad strength in Windows Server, SQL Server and Exchange Server and the company's systems management business grew over 20% from a small base.

Microsoft has been trying hard to make a splash in the consumer market and MSN was up by 10%, Home and entertainment by 9% with Xbox sales going well and reducing its losses. Xbox has vet to make a profit, and has never looked like doing so, but it gets closer every year.

Microsoft promised next quarter revenues of around $10.3bn or better, with operating income up to $4.2bn.

Cisco reported a margin of 23.4%, and its revenues grew 17%, but the market remained unconvinced by John Chambers' predictions for Cisco's future prospects which were reported as "unconvincing", and the stock actually fell on these figures.

BEST OF THE REST

Other companies with net margins over 20% include Oracle, Research in Motion and Intel, who have already reported their last quarter in previous months and Symantec and Citrix which reported this month.

Symantec posted revenue for the quarter of $618m, up 44% and net income of $136m, a 58% rise.

Enterprise business was 49% of the total for Symantec, making consumers ever more important, and the company grew a blockbusting 63%. Symantec expects revenues for next quarter up at $645m to $665m.