Merrill's latest. Cooters
Technology Stocks Won't Rebound Until 2nd Half, Merrill Says
New York, Jan. 2 (Bloomberg) -- Technology stocks won't rebound until the second half, Merrill Lynch & Co. strategist Steve Milunovich predicted, and profit growth at technology companies may slide to 10 percent in 2001 from 32 percent in 2000.
Milunovich, Merrill's chief global technology strategist, wrote in a report to clients that growth in corporate spending on technology will slow to 16 percent in 2001 from 26 percent in 2000. At the same time, continuing improvements to the Internet are expected to boost computer-data storage and fiber-optic companies.
Releasing a set of predictions for the year, Milunovich also said a Merrill survey from December suggested that companies are interested in spending on handheld computing and e-mail devices, data storage, wireless products, databases and servers. They are less interested in spending on mainframe computers, consultants and software to analyze corporate information in databases.
``Fundamentals are likely to be disappointing through at least the first half,'' Milunovich wrote. ``The news should improve in the second half as likely Fed rate cuts begin to affect the economy and earnings momentum improves.''
Data storage will be in demand, Milunovich wrote, because more companies will want to house data-intensive audio and video, and because demand is high for storing various personal records, such as medical data.
Internet Construction
The Merrill survey cited No. 1 software maker Microsoft Corp., No. 1 computer-networking company Cisco Systems Inc., No. 1 personal-computer maker Compaq Computer Corp., server computer maker Sun Microsystems Inc., and data-storage rivals Network Appliance Inc. and EMC Corp. as likely to benefit most from technology spending during 2001.
Fiber-optics equipment makers that could see growth, he said, include Nortel Networks Corp. and Corning Inc.
Companies with ``weaker'' business prospects include computer makers International Business Machines Corp. and Hewlett-Packard Co. and telecommunications-equipment maker Lucent Technologies Inc., Milunovich wrote.
The survey results ``suggest continued buildout of Internet infrastructure, with wireless appliances gaining importance,'' he wrote.
IBM's Global Services unit, which had $32 billion in sales in 1999, could make further gains because the corporate trend toward hiring outsiders to manage corporate computer networks remains strong, he said in an interview. This ``outsourcing'' is a staple of IBM Global Services.
Merrill downgraded Cisco to ``accumulate'' from ``buy'' on Dec. 20, citing the slowing economy. Merrill also cut its rating on Sun to ``accumulate'' from ``buy'' on Dec. 18. These companies could still gain market share, even though other Merrill analysts think the shares are either overvalued or growth prospects are diminished, Milunovich said.
The Nasdaq Composite Index, which is filled with computer and Internet-related shares, fell 39 percent in 2000.
Strength in Asia
Elsewhere, Milunovich wrote that investors should consider diversifying their technology portfolios to include more non-U.S. companies, particularly those in Asia. He also said smaller technology companies -- with market capitalizations of $250 million to $1.6 billion -- could perform better than larger technology companies in 2001.
The dollar value of merger and acquisition activity among global technology companies should decline by 30 percent in 2001, he wrote.
The year will see greater emphasis on making Internet-based information more personal, rising demand for interactive and online entertainment and video games, and continued consumer demand for protection of privacy on the Internet.
Jan/02/2001 13:57 ET |
