Technology execs, analysts see outlook brightening
By Nicole Volpe
BOSTON, Sept 15 (Reuters) - A recovery in the semiconductor sector and in business software, and a collective shrug at the Year 2000 computer problem, cast a positive light on the outlook in the technology industry at an SG Cowen Technology conference here this week.
Companies such as Lucent Technologies Inc. , the leading communications equipment provider, and Computer Associates International Inc. , a top business software company, said Y2K -- shorthand for the problem old computer systems have recognizing the year 2000 -- is generally a non-issue.
"We don't expect Y2K to affect fiscal 2000, and our first half," said Lucent Technologies Executive Vice President Pat Russo. "For the December quarter, we don't currently see any impact of Y2K, although it would be imprudent not to acknowledge it exists as a fact of life."
Investors and analysts at the SG Cowen event said they felt reassured by such optimism but expressed concern the positive outlook left little room for any unexpected disappointments with late-breaking glitches or customer spending lockdowns.
Computer Associates President Sanjay Kumar said that business was again coming on strong, after a slowdown in deals as customers focused their budgets on Y2K fixes.
But analysts advised investors to be cautious, saying that business software clients may still freeze their budgets as the new year approaches
"With respect to information technology budgets, we're hearing a lot at this conference from the standpoint that Y2K is no big deal. It's been almost a script here that management seems very sanguine," said SG Cowen software analyst Richard Chu. "It seems very clear to me that three or four months before the end of the year is not yet time to let down our guard."
SG Cowen software analyst Drew Brosseau warned that business software might not accelerate fully into the fast lane next year. He argued that business software companies may have actually had some positive impact from Y2K fixes that would drop out as a revenue driver next year.
"Companies like CA or Oracle (Corp. ), there is no question that those companies have benefited from stimulation in the storage areas," he said. "They'll suggest that none of the Y2K spending is in their numbers; but you have to wonder, especially in mainframe systems, what effect there has been that they don't know about."
Investors said the optimism seems already reflected in stock valuations and expressed caution.
"Nobody, the investors and the companies, seem to be concerned about Y2K," said Christophe Nage, a manager for Carmignac Gestion, a French fund with $400 million in assets invested in tech and biotech companies. "If there is a shortfall in Q4, that would be a problem."
Nage said he also viewed the semiconductor sector, in a recovery after a three-year downturn, already has much of the recovery built into stock prices, citing recently renewed investor interest in a market driven by strong personal computer sales, wireless devices and Internet growth.
"I don't see much upside left in the semiconductor stocks," he said.
SEMICONDUCTOR SECTOR PICKING UP
Executives from Novellus Systems Inc. , National Semiconductor Corp. and Rambus Inc. said business in the semiconductor sector was picking up.
"From a DRAM (dynamic random access memory) standpoint, we are at the bottom going up," said Rambus Chief Executive and President Geoff Tate. "I think a lot is predicated on the PC business, and we've got this new model of people giving PCs away, which could be a bubble. But it doesn't matter if they give them away if demand is still strong and DRAM prices are going up."
SG Cowen semiconductor analyst Min Pang said he foresees a three to four-year upturn.
"These things are not without their hiccups, but there is plenty of gas in the tank," he said. "Typically, what you see in the early period of recovery are excessively high expectations (from investors) in comparison to earnings estimates. But estimates are still very low, and as estimates edge up, there will be more upside."
He pointed out that the semiconductor industry is what enables technology as a whole to move forward, as faster, smaller and more efficient chips are developed.
Such developments in computer chips allow for more powerful PCs and faster Internet connections, driving a new economy based on the Web.
Motorola Inc. created a buzz at the conference, with its $11 billion deal to buy General Instrument Corp. , the largest producer of cable TV set-top boxes.
Motorola, best known for making semiconductors, cellular phones and pagers, is looking for a stronger presence in the fast-growing market for high-speed Internet services.
Dell Computer Corp. , already providing Internet access, said it was looking to sell customers Web hosting and other features, especially related to electronic commerce |
