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Nortel, Verisign and Dell in pickles all of their own. Plus: Salesforce.com fares well

It is too early to tell which of the current wave of macroeconomic events are affecting the IT industry. Some businesses – many of the industry’s household names included – seem to be doing a roaring trade.

While a batch of downward-pointing financial results published by IT companies in November 2008 seem at first to reflect the wider economic malaise, on closer inspection those companies seem to be suffering from very individual difficulties.

Chief among the month’s losers was Nortel, the telecommunications equipment maker, which reported an eye-watering $3.2 billion loss in its third financial quarter. Revenues were down at the company, from $2.7 billion in the same quarter of last year to $2.3 billion, but the real damage came from two exceptional items: a $1.14 billion acquisition write-down and $2.07 billion tax adjustment.

The company has nevertheless pledged to intensify its cost-cutting agenda, adding a further 1,300 job cuts to a previously announced 1,200 head count reduction.

Financial software and business continuity services provider SunGard also fell foul of acquisition costs in its most recent financial quarter. The company grew revenues by 14% to $1.39 billion, surprisingly driven by a 24% increase in financial systems revenue. However, acquisition costs pushed its outgoings up and, overall, the company lost $35 million.

In a similar vein, Internet infrastructure provider Verisign reported a net loss of $200 million for its third financial quarter, but its revenues in fact grew 14% year on year to $246 million. The loss followed a ‘non-cash impairment’ of assets that it intended to sell but have since devalued to the tune of $237 million.

Despite some bad numbers here and there, there was little in November’s financial results to suggest that the IT sector’s nightmare scenario is about to become reality. In fact, there were even some encouraging signals.

Among the month’s strongest performers was Salesforce.com. The company reported a year-on-year growth of 43% in its third financial quarter, with revenues rising $276.5 million. And providing some retaliation to comments made earlier this year by its own benefactor, Oracle CEO Larry Ellison, dismissing the profitability of software-as-a-service (SaaS) providers, Salesforce.com grew profits to $10.1 million from $6.5 million in the same period last year.

CEO Mark Benioff told investors that despite the decline in financial markets throughout the quarter, Salesforce.com’s business actually picked up. “September sales were larger than August, and October sales were larger than September,” he said. “Equally as important, we delivered these results with no meaningful change to our pricing.”

However, a commonly cited lead-indicator for the IT industry’s future performance is PC and server sales. The fate of computer maker Dell might therefore be cause for concern.

Dell’s nightmare returns

For the first two financial quarters of this year, Dell seemed to have shaken the curse that saw it lose leadership of the PC business to HP. But in its most recent financial quarter, Dell saw revenues fall by 3% to $15.2 billion. That came way below financial analysts’ expectations of 7% revenue growth for the quarter.

The fall was driven by a sharp decline in desktop PC sales, were revenues fell 14% from $4.7 billion to $4.1 billion year on year.

Also worrying for the company was a deceleration of sales in China. Revenue in the country grew by 18%, down from a growth rate of 33% in the previous quarter. Dell places strategic significance upon the Chinese market, which it hopes will counterbalance the economic decline in the West.

It was not all bad news for Dell. The company managed to cut operating costs to $1.8 billion, down 11% from the same quarter last year, thanks mainly to a 2,000-job reduction. That drove operating profit up 22% from $819 billion to $1.1 billion year on year, and share prices consequently rose.

The company said that it would augment its ongoing 8,500-job reduction programme (Dell employs around 80,000 people) with offers of voluntary redundancy and unpaid leave.

Nevertheless, HP managed to rub salt in Dell’s wounds once again with its own financial performance. Seemingly immune to the impact of the credit crunch, the company saw fourth quarter revenue increase 19% to $33.6 billion.

Like Dell, HP saw a decline in desktop PC revenues – in its case, sales dropped 2% – but a 21% growth in laptop sales pushed the division’s total revenues up 10% to $11.2 billion.

The Enterprise Storage and Servers arm saw revenues fall by 1% year on year, down to $5.1 billion. That was mainly the fault of its high-end server business where revenues fell by 10%. That effect, which mirrored similar declines at all other server vendors, was counterbalanced by a 13% growth in storage products.

The most profitable, as ever, was HP’s Imaging and Printing Group. Revenues for that unit were down 1% on reduced printer shipments, but a 9% increase in supplies revenue (largely, printer cartridges) helped push profits up 9% to $1.2 billion.