Caution ahead for high-tech industry
Large firms forecast slow growth despite upbeat earnings results
By Chris Gaither
Boston Globe Staff
1/21/2003
SAN FRANCISCO - When Infineon AG reported its quarterly earnings yesterday, the German semiconductor manufacturer echoed the sentiments expressed last week by some of the US high-tech industry's leaders: encouraging results, disappointing outlook.
Saying that customers bought more memory chips for cellphones, cars, and industrial electronics, Infineon reported a 47 percent rise in revenue over the previous year and sharply narrowed its loss. But, like Intel Corp., Microsoft Corp., and many others, Infineon said a tough business climate in 2003 portends no immediate end to the drought in spending on high-tech products.
''Although we see first signs of a positive market trend, it is still too early to speak of a sustained overall market improvement,'' Ulrich Schumacher, Infineon's chief executive, said in a statement.
In much-anticipated earnings reports over the past week, many of the world's largest high-tech companies reported sales and profits that exceeded the goals they had publicly set for themselves and the expectations of Wall Street analysts. Microsoft, Intel, IBM Corp., Yahoo, and eBay all beat the Street's numbers.
But despite evidence that the fourth quarter had been less dreary than forecast, the Nasdaq tumbled 6 percent last week, closing Friday at 1,376.19, on cautious comments by most of the reporting companies to investors already concerned by the prospect of war with Iraq.
Chief executives of most of the large companies issued predictions for lukewarm growth. Microsoft, for example, lowered its revenue forecasts for 2003. And Intel, the world's leading maker of chips for personal computers, said it saw no short-term end to the market's slump and slashed its annual capital spending budget by up to 25 percent.
The wary sentiment also resonated among smaller companies, including Teradyne Inc. The Boston maker of semiconductor testing equipment reported a steep loss of $423.8 million, or $2.31 a share, triggering sell ratings and sending the company's stock down 21.4 percent, to $12.17, in three days of trading after the release.
''The combination of a weak economy, weak demand for technology products, and the uncertain world situation overwhelmed the recovery we had begun to see in the first half of 2002,'' said George Chamillard, chairman and chief executive of Teradyne. ''Unfortunately, none of those negative factors has changed as we enter 2003.''
Some analysts said high-tech executives were being more cautious than usual in their forecasts. During this time last year, many high-tech companies reported earnings that fell short of Wall Street's expectations, continuing a string of disappointment for investors. But those executives largely issued bullish forecasts for a turnaround in the second half of 2002. That recovery never materialized, and the aborted recovery apparently taught executives a lesson about cheerleading.
''Tech CEOs were too overly optimistic, and today it might just be the case that they're too pessimistic about the future,'' said James Paulsen, chief investment officer for Minnesota-based Wells Capital Management. Given that unfounded optimism last year, he added, it's surprising that investors sent the Nasdaq down sharply last week. ''If you take away the comments from CEOs about the future and just look at the reports, you've got a very different feel,'' he said.
Yahoo Inc., the Internet media company and Web portal, reported a 51 percent increase in fourth-quarter sales, as it continues to persuade more customers to pay for services like personal ads and paid search results. Yahoo turned a profit after a loss during the same period last year. Saying it sees more large advertisers embracing the Internet, Yahoo predicted that its online advertising revenue would increase 20 percent this year.
EBay, the online auctioneer, demonstrated that when it reported a threefold jump in profits and raised its forecast for the current quarter and full year. Its shares leapt 5 percent Friday even as the Nasdaq declined.
But hardware makers continue to face rough times. Sun Microsystems Inc. reported its largest-ever loss of $2.3 billion as it took an enormous charge to write down investments. Excluding the charges, Sun broke even. Apple Computer Inc. lost $8 million but forecast a slight profit during the current quarter. Advanced Micro Devices Inc., the number two maker of PC chips, reported a loss of $854.7 million on tumbling revenue and charges related to a restructuring plan that will cut its work force by 15 percent.
Some specialty computer markets continue to grow. Mercury Computer Systems Inc. of Chelmsford, whose systems monitor sonar and radar for the military, last week beat analysts' expectations on strong sales to defense contractors and reported a profit of $6.5 million, or 29 cents a share.
But corporations still have too many technology products stockpiled. They won't work through that capacity and start buying many new products until their profits improve, said Alan Adelman, chief investment strategist with Wells Fargo, the San Francisco financial services company.
''In the long term we're definitely technology bulls, but in the short term we're technology realists,'' Adelman said. ''You can't expect technology to lead us out of the economic doldrums we find ourselves in.''
Chris Gaither can be reached at gaither@globe.com.
This story ran on page F1 of the Boston Globe on 1/21/2003.
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