Computer makers will be judged on revenues, outlook
By Nicole Volpe
NEW YORK, July 11 (Reuters) - With computer makers expected
to meet analysts' second-quarter profit targets on strong
corporate demand, Wall Street will focus on how the companies'
revenues are holding up and the outlook for the second half,
analysts said.
"For all these technology companies, a key point is
revenue," said Friedman, Billings, Ramsey analyst Ulric Weil.
"The Street is not all that concerned about a penny or
two," he said, referring to minor deviations from earnings per
share estimates, which can be massaged by investment gains and
share buybacks. "Revenue is what causes furrowed eyebrows."
Overall, computer hardware companies have not captured the
imaginations of tech investors, with second quarter stock
prices declining 15 percent, compared to hotter sectors such as
data networking, which has surged 40 percent as a group.
Recent profit warnings by computer services and companies
that provide software for mainframe computers clouded the
revenue picture somewhat for International Business Machines
Corp. <IBM.N>, the world's largest computer maker.
Some analysts recently lowered their expectations for IBM,
from low-single digit revenue growth to nearly flat, or even
declining revenues.
"Compared to the first-quarter... we would characterize the
overall environment as hazier in terms of a higher volume of
high-profile earnings pre-announcements, which were generally
absent from the first-quarter earnings season," Bear Stearns
analyst Andrew Neff wrote in a note to clients.
Confidence that IBM would post revenue growth in the second
quarter was shaken by the disconcerting profit warnings by
computer services companies such as EDS Corp. <EDS.N> and
software companies such as Computer Associates International
Inc. <CA.N>
Armonk, N.Y.-based IBM's share price dropped to four-month
lows last week.
The multinational nature of most computer makers'
businesses also left them exposed to fluctuations in exchange
rates, which were not working in their favor in the period,
Weil added. Weak local currencies in some of the countries in
which they operate have hurt sales of products which are priced
in dollars.
Sun Microsystems Inc. <SUNW.O>, in contrast with IBM, was
expected to show revenues expanding in leaps and bounds,
benefiting from further growth of the market for servers, the
computers that form the backbone of the Internet.
"In the enterprise hardware space we're seeing a separation
of old technology companies and new technology companies," said
Merrill Lynch analyst Steven Milunovich.
Salomon Smith Barney analyst John Jones expected 35 percent
revenue growth from Sun in the second quarter.
Personal computer makers were expected to benefit from
higher demand toward the end of the quarter, as well as from a
more favorable supply of key components. A shortage of
components such as certain memory chips and flat panel screens
had made it difficult to meet demand in the spring.
Compaq Computer Corp. <CPQ.N> , the world's largest
personal computer maker, said in a statement last week that its
quarter was back-end loaded, meaning business increased toward
the end of the quarter because of supply constraints at the
beginning.
The statement was made by Chief Financial Officer Jesse
Greene, who was defending the Houston-based company after an
analyst suggested its levels of inventory sold to third-party
retailers had piled up.
Neff said Greene's quick reaction to the negative comments
was essentially "putting his neck on the line over the
quarter."
Compaq President and Chief Executive Michael Capellas on
Thursday reiterated that he was comfortable with inventory
levels, and that there were no changes to the standard price
protection terms, as suggested by the analyst.
"We believe Compaq is experiencing good demand throughout
the quarter, especially in the industry standard server area,"
said Fortuna. However, he said he thought his $10.17 billion
second-quarter revenue estimate might be optimistic.
Gateway Inc. <GTW.N> shares have rebounded from a low of
$47 in late May to a closing price on the New York Stock
Exchange of 67-3/8 on Tuesday, showing increased investor
confidence ahead of the company's earnings report, expected
Thursday.
"While the first two quarters are always nail biters, we
are confident that Gateway will hit our second quarter
numbers," Neff said, adding he expects a strong second half
driven by heavy consumer demand.
Salomon Smith Barney analyst Richard Gardner said
management has expressed confidence in recent presentations at
conferences. However, he believes Gateway may come in $10
million to $20 million light of his revenue estimate of $2.16
billion.
Analysts looking out to August earnings reports from
Hewlett-Packard Co. <HWP.N> and Dell Computer Corp. <DELL.O>,
said both were moving on track to meet estimates.
"Based on our conversation with the company, we believe
that HP will deliver 15 percent revenue growth in the third
fiscal quarter, driven by strong demand for storage and Unix
servers," Milunovich wrote in a note to clients.
Strong PowerBook sales will help Apple Computer Inc.
<AAPL.O> in the June quarter, Gardner said, although he thought
the negative impact of the weak Euro on European sales may
cause revenue to come in lower than his $1.94 billion forecast. |
