Tech investors say recovery on track
By Richard Waters in San Francisco
Published: April 18 2004 20:07 | Last Updated: April 18 2004 20:07
The technology industry's recovery remains on track, despite stock market disappointment about the slow pace of the rebound and the possible threat from rising interest rates, according to a number of big technology investors.
Last week Intel and IBM shares fell by about 2 per cent the day after their quarterly earnings, even though both met forecasts and reported signs that the tech sector's recovery was taking a broader hold.
Stock market sentiment was also dented by bad news from Nokia, which said its second-quarter profits would fall short of expectations.
Despite these setbacks and a broader pull-back in tech stocks, investors say that the industry's cyclical recovery has not been thrown off course.
"We're pleased to see [tech companies] getting back to growth - though we'd like to see more than we have to date," said Paul Cook, director of technology investing at Munder Capital, a US investment firm. The broader recovery in corporate profits would continue to underpin growing spending on technology, he added.
"We expect the recovery to start out modestly and pick up momentum as it grows," said Kevin Landis, chief investment officer of Firsthand Funds, another US technology investment firm. The slow pace was typical for this stage in an economic recovery, he said.
They and other investors blamed the stock market setbacks on unrealistic expectations about the likely pace of the recovery rather than any underlying weakness in the sector.
Several also argued that rising interest rates should not stem the gradual recovery in tech demand. Despite a brief retreat after US interest rates began to rise in early 1994, tech stocks recovered strongly, said Dan Niles, chief executive officer of Neuberger Berman Technology Management, an investment firm owned by Lehman Brothers.
So far, the recovery has been muted. For instance, while IBM reported an 11 per cent increase in revenues in its latest quarter, underlying growth was only 3 per cent after stripping out the effects of the weaker US dollar. Yet that represents a pick-up from the 1 per cent growth of the previous quarter and company executives said last week that the signs of a recovery they had seen in the final months of 2003 had continued to spread this year.
Recent bad news from some big tech companies was also more a reflection of their own specific problems than industry-wide issues, some investors said.
Nokia's earnings warning on Friday came shortly after Samsung, its closest rival, reported a strong advance in mobile handset sales. Further signs that Nokia's problems are company-specific came with solid earnings last week from Texas Instruments, which makes chips for handsets and is one of Nokia's main suppliers, according to Mr Landis.
[Harry: I don't expect to see a real contraction till after the election when the incumbent can stop stimulating the economy in order to get re-elected. Then I would expect a big hang over, considering the amount of liquidity and debt that has been created by the low interest rate. Interesting comment from my broker, in the old days the central bank used to control the economy by control the margin requirements for the banks. China is doing this but the rest of the world is not. Surprisingly China may have a softer landing than the USA.] |
