Computer Makers' Silence Suggests Quarter on Track
Monday January 14 5:22 PM ET
By Caroline Humer and Peter Henderson
NEW YORK/SAN FRANCISCO (Reuters) - Computer makers' silence in the first weeks of January has been golden for technology investors nervous that a slew of warnings was in store.
Those warnings didn't come -- a sign analysts say that results won't be any worse than what the companies have already forecast given the global downturn in technology spending.
``While most earnings will remain depressed, investors want to hear companies tell them that earnings have bottomed and that they see improvement in upcoming quarters,'' said Bill O'Hearn, a portfolio manager at Valentine Capital.
Few companies forecast strong results in the last quarter of a rough 2001 -- setting the scene for companies like Compaq Computer Corp. (NYSE:CPQ - news) and Sun Microsystems Inc. (Nasdaq:SUNW - news) to meet or beat their guidance, although they will be under pressure to give clear, positive forecasts, analysts say.
So far, no hardware technology company has indicated that it expects earnings to have been lower in the fourth-quarter than they had anticipated, a sharp change from earlier in the year when companies blamed a technology spending slowdown on the economy and, more recently, the Sept. 11 attacks.
Anticipating better days, technology stocks jumped in the fourth quarter, with the American Stock Exchange computer hardware index (^HWI - news) up about 58 percent, to 158.23 from an Oct. 2 low of 100.24, and now investors are looking for a little validation for their leap of faith.
``Valuations are high so all news must be positive,'' said O'Hearn, who was encouraged by the lack of warnings.
CONSUMERS FINALLY BOUGHT SOME PCS
Personal computer sales and discounts appear to have lured holiday shoppers in larger numbers than bearish analysts had expected after a year-long slump and price war led by Dell Computer Corp. (Nasdaq:DELL - news), which early in 2001 displaced Compaq as the No. 1 PC-maker.
Compaq said the fourth quarter of 2001 was weaker than the same period in 2000 but better-than-expected.
The Houston-Texas based firm said last week that it expected to post a profit for the fourth quarter instead of the loss it previously expected. In part, that was due to raised expectations for revenue of more than $8 billion, up from earlier guidance for $7.6 billion to $7.8 billion.
Compaq reports on Jan. 16 after the market closes.
Gateway Inc. (NYSE:GTW - news), said it would show a profit despite falling sales, which analysts took as an indication it was selling higher-end systems but losing market share.
Gateway, which reports on Jan. 24, said sales would be around $1.16 billion and is expected to report operating earnings per share of a penny.
Andrew Neff, an analyst at Bear Stearns, said in a research note that, during the fourth quarter, PC demand improved, component availability declined, and profitability became a bigger concern than market share.
Other PC makers, such as Dell, which won't report until February, and Apple Computer Corp. (Nasdaq:AAPL - news), which reports on Jan. 16, could also beat lowered expectations, he said.
Dell is expected to report earnings per share of 16 cents on sales of $7.7 billion, and Apple is seen reporting 11 cents earnings per share on sales of $1.43 billion, according to Thomson Financial/First Call.
Both those companies gave guidance when the technology industry was expecting a drop in spending, Neff said.
Lehman analyst Dan Niles on Monday, however, said that rising costs for such PC components as dynamic random access memory, or DRAM, the most widely used type of memory, may put Dell's fourth quarter at risk. In the past two months, prices of DRAM have risen sharply, decreasing Dell's margins.
CORPORATE SPENDING
The outlook for technology spending among corporations isn't as clear as it is for consumers, analysts say.
International Business Machines Corp. (NYSE:IBM - news) should book earnings that are about 10 percent lower than they were a year ago because of the broad decline in technology spending.
Its balanced, annuity-like revenue stream, in which software and services account for about 60 percent of revenue and 75 percent of pretax income, is unlikely to swing with any sudden demand changes that may have occurred in the fourth quarter, analysts said.
``Obviously, people care about what IBM's actual numbers for revenue and EPS are. But, beyond that, people want to know what the guidance is and how comfortable IBM is looking forward in terms of their expectations,'' said Toni Sacconaghi, an analyst at Sanford Bernstein.
Meanwhile, Sun Micro in December said its quarter was on track, although it did not give a precise forecast. Analysts said some of the $200 million to $300 million in orders that Sun said were lost during the third quarter because of Sept. 11, were actually pushed out to the fourth quarter.
Salomon Smith Barney analyst John Jones said Sun had pushed back some component orders late in the quarter.
``The company may have been comfortable with its ability to meet the quarter and is building a cushion in'' the first quarter of 2002, he wrote in a note.
On Jan. 18, Sun is expected to report a fiscal second-quarter loss of 4 cents per share, compared to a 16-cent profit a year ago, on sales of $3 billion. |
