Merrill pushes back expected tech recovery date -
Pushing back the tech recovery date
By Bambi Francisco, CBS.MarketWatch.com
Last Update: 5:35 PM ET Feb 25, 2001
SAN FRANCISCO (CBS.MW) -- Optimism for a second-half of the year tech recovery is waning fast.
While many market professionals had been expecting the technology sector to rebound as early as this summer, Merrill Lynch warns that any improvement might not come until the end of the year.
"Estimates (for quarterly profits) will continue to fall such that the first meaningful profit growth will be in the fourth quarter," Steve Milunovich, head of Merrill Lynch's global technology research team, wrote in a research report.
In light of this grim outlook, tech stocks may not rebound until late in the year, he said.
In a recent note to clients, Milunovich suggested that Wall Street forecasters ought to be more conservative in their outlook for technology company profits. He said it might be overly optimistic to expect first-quarter earnings to decline by only 17 percent and then rise 6 percent in the second quarter.
Additionally, some estimates that see 25 percent profit growth in the third quarter and 58 percent in the fourth quarter will need to be downwardly revised, Milunovich wrote.
"Recent evidence suggests that the inventory correction could last into the fourth quarter," he wrote. "We expect that analysts will reduce estimates such that tech profits won't show much year-over-year increase until fourth quarter."
Moreover, the Federal Reserve's rate easing, while historically positive for tech stocks, will be "muted," he wrote.
Tech stocks moved up more than 40 percent on average during the two Alan Greenspan-engineered rate cuts earlier this year, he pointed out. But the outlook for high-tech firms is more likely to be influenced by the technological changes underway rather than interest-rate reductions.
Milunovich pointed to the mid-80's, when the personal computer became the platform for new technologies. The last similar year-over-year drop in profits occurred during that period, he wrote.
As technology now shifts away from PC leaders to Web-centric leaders, another lackluster year may be in the offing for the broad tech sector.
Said Milunovich: "Tech might be in a multi-year digestive trading range until the new-generation companies fully assume the mantle from the PC era leaders."
Bambi Francisco is Internet editor of CBS.MarketWatch.com, based in San Francisco.
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