TECH WEEK AHEAD - Look, but don't jump, on
earnings news
By Eric Auchard
NEW YORK, April 16 (Reuters) - Solid earnings reports due out from many of the world's
largest technology companies in coming days are unlikely to stem the tide of selling that
swept markets and took down any high-priced stock in its path.
In advice to investors over the weekend, several major U.S. brokerages said it was too
early to begin bottom-fishing among Internet and technology stocks that in many cases have
fallen as much as 50 to 80 percent below year-high levels.
Instead, investors should pack away the information gleaned from this month's financial
reports in order to pick potential winners when the time is right to jump into the market
again, top U.S. technology analysts and markets strategists said.
``We are still in week two of a five- to six-week process,' cautioned Pip Coburn, chief technology strategist at brokerage
Warburg Dillon Read in New York, in a report written on Friday.
The world's top technology and companies are expected this week to post solid quarterly earnings reports and growth outlooks
that, with some exceptions, will show how business fundamentals have rarely been better for the sector.
But technology analysts and fund managers said even the strongest results will matter little to investors now caught in the grip of
a backlash against over-valued stocks that has led them to shun almost anything tied to the once-prized technology sector.
``This is one of those coming-to-Jesus meetings,' said Ashok Kumar, computer analyst for U.S. brokerage Piper Jaffray, of the
sudden change-of-heart that has seized investors. ``The consensus to date had been what goes up must go up.'
With an estimated nearly 90 percent of the world's stock market investors active in technology sectors, that spells more gloom
for equity markets in the weeks ahead.
``The market's response is pounce on any bid at any price no matter what the numbers (earnings) indicated,' Coburn said.
``We had thought earnings might pull us from the wreckage, but at this point earnings seem to be nothing more than a period of
enhanced liquidity,' he said in a research report referring to increased buying and selling in response to earnings.
Taking a cue from the sharp rebound that followed the last major stock market downturn in 1998 -- the Asian economic crisis
-- he advised that investors seek out ``high octane' major-name technology stocks that have fallen sharply and thus could see a
bigger bounce upward when and if markets rebound.
On Friday, technology-specific indexes fell sharply, including the Philadelphia Semiconductor Index, which lost nearly 12
percent, and the Morgan Stanley High Technology Index of 35 top companies in the sector, which gave up 8 percent.
The technology-laden Nasdaq composite index (^IXIC - news) plunged 9.67 percent to 3,321.29 on Friday, a record
one-day point decline, as investors continued to bail out of high-priced tech shares. The index has lost 34 percent from a
March 10 high of 5,048.62, but remains 15 percent above its closing level six months ago.
Asian markets swooned on Monday, driven lower by technology stocks, sending Tokyo's Nikkei index down 5 percent and
Korea's composite stock price index down 11 percent in early trading.
Results due out this week from top industry names, such as IBM (NYSE:IBM - news), Intel Corp. (NasdaqNM:INTC -
news), Microsoft Corp. (NasdaqNM:MSFT - news), America Online (NYSE:AOL - news) and SAP AG of Germany -- are
unlikely to defuse the downward momentum, analysts cautioned.
``This is not about individual companies or the fundamental soundness of their businesses,' said Goldman Sachs computer
analyst Laura Conigliaro. ``Some multiples in particular and maybe all multiples in general in technology either got a little or a lot
ahead of themselves,' she said, referring to a common calculation for valuing individual stocks or sectors.
Evidence of how little business fundamentals matter under current market conditions is seen in the sell-offs that followed many
of the most bullish reports from major technology companies to issue financial results so far.
Seeming safe-havens such as suppliers of communications or semiconductor making equipment -- whose demand is fuelled by
industrywide product shortages -- has proven little defence as the stocks in turn appear over-valued relative to the market.
KLA-Tencor (NasdaqNM:KLAC - news) one of the world's dominant suppliers of computer chip-making equipment, posted
earnings far ahead of Wall Street expectations -- amid a cyclical boom in its business -- and still saw its stock fall sharply last
week. The stock closed down 7-1/4 to 57-5/8 on Friday.
Advanced Micro Devices Inc. (NYSE:AMD - news), the No. 2 maker of microprocessors behind Intel, and Sun
Microsystems Inc. (NasdaqNM:SUNW - news), the top supplier of computers used to run Web sites, posted stellar results
and saw their stocks sell off. AMD lost 4-3/16 to 66-9/16 on Friday as Sun gave up 1-1/4 to 76-1/2.
``Good numbers matter but they've not mattered much in the past few days,' Warburg Internet analyst Michael Wallace said.
``What's going on in the market here is exclusive of earnings,' he said.
``I expect the earnings to be good from AOL and ExciteAtHome but I'm not sure if it's going to matter here,' Wallace said.
America Online is set to report earnings on Tuesday afternoon while ExciteAtHome (NasdaqNM:ATHM - news) posts results
on Wednesday.
An analyst of Internet retail stocks at San Francisco-based brokerage BancBoston Robertson Stephens joked late last week in
a report that investors appear to have mistaken the quarterly earnings reporting period for rabbit-hunting season.
Monday kicks off with a major test for new Internet stock issues as T-Online , Europe's biggest Internet access provider, steps
into the breach with its highly-anticipated initial public offering, even as other firms cancel IPOs.
Germany's Deutsche Telekom AG , the parent of T-Online, sought to limit the damage from falling stock prices by setting the
issue price for T-Online at the bottom of its expected price range, in the hopes the stock might rise.
Meanwhile, AltaVista, the Palo Alto, Calif.-based Internet search and media network that is among the Web's 10 most visited
destinations, postponed late on Friday its planned IPO due out next week, a spokesman for AltaVista said.
Although many analysts see bright spots in the upcoming reports from Apple Computer Inc. (NasdaqNM:AAPL - news), the
consumer PC maker, and Lucent Technologies Inc. (NYSE:LU - news), can upbeat results protect their stocks?
In Asia, Flextronics International Ltd. (NasdaqNM:FLEX - news) of Singapore, one of several contract manufacturers of
electronics poised to report next week, is also seen by analysts as ready to beat expectations.
Andrew Neff, chief technology analyst at brokerage Bear Stearns, said that while a booming technology market has led to
share price excesses in recent years, demand for the products and services of the Internet economy remains undiminished.
``The primary determinant of where the market heads is not short-term volatility -- it's Moore's Law,' he said of the
exponential power of computer chips to boost productivity, cut business costs, and, eventually, create new shareholder value. |
