Cloud Computing Helps Revive Corporate IT Spending, Boosts Intel and IBM

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Better-than-expected earnings this week by several major technology vendors suggest a rebound is underway in corporate IT spending – much of which was postponed by the recession – and a big surge in cloud computing investments.

Intel Corporation (Nasdaq: INTC) reported a 34% rise in first-quarter profit due to strong sales of chips for high-end servers used in data centers in addition to a surprising increase in PC chip sales. And International Business Machines Corp. (NYSE: IBM) reported its highest revenue growth in a decade as businesses bought more servers and equipment for data centers.

Other tech vendors posting positive earnings included EMC Corporation (Nasdaq: EMC), a manufacturer of corporate data storage products, and VMware Inc. (Nasdaq: VMW), which develops virtualization software used on corporate servers.

"The product replacement cycle is finally occurring after the downturn of 2008," Michael Yoshikami, chief investment strategist for YCMNet Advisors told Bloomberg News. "The earnings in all of these companies reflect the fact that businesses are spending again."

Intel Chief Executive Officer Paul Otellini said the enterprise upgrade cycle is still young, and should help offset slowing sales of PCs to consumers, who have begun a shift toward tablets such as Apple Inc.'s (Nasdaq: AAPL) iPad.

"The most recent data we have is that something like 75% of enterprise PCs are still running [Windows] XP," Otellini said during the earnings conference call, referring to Microsoft Corporation's (Nasdaq: MSFT) decade-old operating system. "And so if you think about a 3- to 4-year refresh cycle, we're probably not even halfway through that cycle yet."

Intel's results also enjoyed a pop from greater corporate spending on cloud computing ventures, particularly data centers. Data center revenue, at $2.5 billion was up 32% and accounted for one-fifth of total revenue of $12.8 billion.

Many major tech companies, such as Dell Inc. (Nasdaq: DELL), Amazon.com Inc. (Nasdaq: AMZN), Apple, Google Inc. (Nasdaq: GOOG) and Microsoft have built or planned to build large data centers to host cloud-based business initiatives.

Apple spent $1 billion on a massive data center in North Carolina; Dell plans to spend $1 billion on the construction of 10 data centers from now through 2012.

"What we are witnessing is an explosion of computing devices that connect to the Internet, and Intel is a big part of this trend," Otellini said, expressing optimism that the data center business would be a major growth driver for "many years to come."

While Intel has done well supplying chips to companies that serve the explosion in mobile devices, it has struggled in the market for chips used by mobile device makers. The iPad and iPhone, for example, use Apple's proprietary processors, while other device makers use chips from Intel rival Advanced Micro Devices, Inc. (NYSE: AMD).

Otellini promised that the new "Medfield" chip technology will make Intel a more attractive option in the mobile space.

"I would be very disappointed if you didn't see Intel-based phones for sale 12 months from now," Otellini said.

IBM, meanwhile, saw its first quarter profit increase 10% to $2.86 billion. Revenue rose 7.7% to $24.6 billion, with the greatest growth coming from hardware sales. Sales of its mainframes rose 42%, more evidence that businesses are again spending on IT infrastructure.

Cloud computing also made a major contribution to Big Blue's rosy results – the company said cloud-related sales grew fivefold year-over-year and should double for all of 2011. IBM said it expects cloud-related sales to reach $7 billion by 2015.

IBM has designated cloud computing, which includes software and services, as one of its four main engines of growth.

And with good reason. Research firm Gartner Inc. (NYSE: IT) projects that the market for cloud-related services will double from $58.6 billion in 2009 to $148 billion in 2014.

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