This Tech Rally Is Real!

Open letter to all the skeptics: This tech rally is real.

I can forgive some apprehension after Intel's (Nasdaq: INTC  ) report, which was so good that it surprised even the company's own management. Then, Apple (Nasdaq: AAPL  ) delivered predictable excellence in a nutshell, and your doubts should have started to fade. VMware (NYSE: VMW  ) showed that the software side of the house can shine, too.

And now, with last night's fourth-quarter report from Western Digital (NYSE: WDC  ) , the two largest hard drive makers have reinforced the unmistakable message: People are buying gadgets and computers again. The drought is over.

Western Digital managed to pull an Intel and surprise itself. Forty million hard drives shipped translated into $1.9 billion in revenue, and net income of $0.86 per share. That's a unit volume record for the company, and both sales and profits have nearly returned to where they were a year ago. The stock’s trading down today on concerns it’s risen too fast, up 200% since November. But don't be fooled -- this was an amazing quarter.

Last quarter, management set its sights on fourth-quarter revenue around the $1.5 billion mark, a 15.4% gross margin, and earnings no higher than $0.24 per share. Have a look at the actual margins:

Metric

Q4 2009

Q3 2009

Q4 2008

Gross

19.2%

15.9%

21.3%

Operating

10.8%

5.0%

12.1%

Net

10.2%

3.1%

10.7%

Across the tracks, chief rival Seagate Technology (Nasdaq: STX  ) told a very similar story last week. 40.6 million drives shipped, $2.35 billion net sales, and adjusted net income of $0.06 per share combined to give both Seagate and Western Digital shares a boost. Together, the two companies tell a rather complete tale of market health: Western Digital goes after netbook contracts aggressively and likes to rule the lower end of the market, as evidenced by an average selling price of $48 per drive. Seagate's average prices are much higher at $58 per unit -- but both businesses are doing just fine.

Yes, there are exceptions to the recovery. Microsoft (Nasdaq: MSFT  ) seems stuck in the mud until Windows 7 hits store shelves in a couple of months. Advanced Micro Devices (NYSE: AMD  ) had to clear out old inventory, while Intel thrived on new product sales this quarter. But these are the exceptions -- not the rule. Evidence has reached critical mass on the bullish side of this argument.

Convinced of this market recovery yet, Doubting Thomases? I really think you should be. Feel free to tell me off in the comments box below, though.

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VMware is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor recommendation. Intel and Microsoft are Motley Fool Inside Value selections. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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