Cost-cutting Boosts Tech Stocks

Technology stocks are finding themselves in a position similar to that of blue chip stocks in the early 1990s: the more they cut costs, the more investors cheer.

Ericsson was the latest to benefit from this phenomenon, soaring 19% Tuesday after announcing larger than expected cost reduction measures. The Swedish cell phone giant missed loss estimates by a wide margin, but revenues came in better than expected despite a 30% year-over-year decline.

Investors are betting that leaner tech companies will result in strong profits when tech spending rebounds, but with companies like Microsoft cautioning that tech spending is likely to remain subdued over the next year, investors’ patience may get tested. Technology earnings growth is so far outpacing revenue growth by a wide margin, suggesting that the better than expected earnings reports are largely the result of cost-cutting.

The broader market, meanwhile, gained on a much better than expected consumer sentiment reading, but gave back much of those gains by the end of the day, as the Dow once again failed to clear the key 8522 level.

The Nasdaq gained 9 to 1471, the S&P 500 rose 3 to 917, and the Dow climbed 31 to 8502. Volume rose to 1.49 billion shares on the NYSE, and 1.67 billion on the Nasdaq. Advancers led 18-13 on the NYSE, and 16-14 on the Nasdaq. Upside volume was 65% on the NYSE, and 72% on the Nasdaq. New highs-new lows were 155-15 on the NYSE, and 149-22 on the Nasdaq.

After the close, QLogic , RealNetworks and JDS Uniphase beat estimates. webMethods and Maxim missed revenue estimates. Microstrategy beat estimates but guided lower. Neoware matched estimates and announced a new CFO. And Cisco’s SAN switches got a big boost from EMC .

During the day, Intuit and Macrovision soared 11% each on better than expected results, but FreeMarkets , Altera and fell on their earnings reports.

Ciena bolted 5.8% after winning a patent dispute against rival Corvis .

Applied Materials rose 3% on an acquisition.

Cisco added 1.1% on a new router processor and a deal with IBM .

Microsoft ended the day only slightly higher despite Windows Server 2003 endorsements from HP and Unisys .

Computer Associates climbed 0.4% after joining the on-demand computing trend.

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