Reuters, Tuesday, December 09, 1997 at 18:50
By Kourosh Karimkhany
PALO ALTO, Calif., Dec 9 (Reuters) - Technology stocks
likely will lag behind the rest of the stock market for the
next three months as Asia's economic illness eats into the
earnings of U.S. computer companies, analysts said Tuesday.
Wall Street analysts are slashing earnings forecasts for
most segments of the computer industry, particularly chip
makers, disk drive manufacturers, telecommunications and
semiconductor equipment makers. Cuts in earnings forecasts
usually drag down stock prices.
"They're definitely cutting estimates across a wide
spectrum," said Ben Zacks, executive vice president of Zacks
Investment Research, which specializes in tracking analyst
earnings estimates. "I think this time it's a little more than
just a tech scare."
The latest victim of Asia's troubles was software publisher
Oracle Corp., which reported a nasty earnings shortfall Monday.
Oracle, which gets about 50 percent of its revenue from abroad,
said weak Asian sales likely will hamper its growth for at
least two more quarters.
Even technology companies that aren't as dependent on
business from Asia also face tougher times in coming months
because their customers likely include companies that do rely
on Asia for revenue.
"If we get a slowdown in companies like Oracle and they cut
back on capital spending, those companies that sell them PCs,
for example, could be hurt as well," said Marty Hurwitz, senior
portfolio manager with American Express Financial Advisors, a
mutual fund giant.
On Tuesday, most technology stocks were down following
Oracle's warnings. In midafternoon trading, Oracle shares had
dropped $9.75, or 30 percent, at $22.625 on volume of 160
million shares.
Intel Corp., the world's biggest chip company, was down
$2.69 at $75.75. Microsoft Corp., the biggest PC software
company, was down $2 at $144.125, Compaq Computer Corp. fell
$2.69 to $62.75. And Cisco Systems Inc., the biggest networking
equipment vendor, slipped $2.56 to $87.19.
Analysts said semiconductor stocks would be hit hardest by
Asia.
Countries like Taiwan and South Korea invest heavily in
their semiconductor industries. Because of the threat of bank
closings, loans and financing are harder to come by, so Asian
semiconductor companies have had to slash their expansion and
spending plans.
Last week, for example, South Korea's Dongbu Group scrapped
plans to open a $2 billion memory chip plant because of tight
financing.
That means less orders to U.S. suppliers of semiconductor
manufacturing equipment like International Business Machines
Corp., Applied Materials Inc. and Novellus Systems Inc.
"We took our sector rating on semiconductor equipment down
a while ago," said John Rohal, director of research at
investment bank BancAmerica Roberton Stephens.
On top of that, falling Asian currencies are making Asian
memory chips cheaper abroad. That is putting enormous pressure
on U.S. chip makers, like Texas Instruments Inc. and Micron
Technology Inc., to slash their prices and profits to compete.
Even the earnings of Compaq and Dell Computer Corp. --
which have said they do not expect any impact from Asia -- will
eventually come under pressure as PC prices fall, analysts
said.
"It's not just about Asia. Price cutting and the strength
of the dollar was putting margin pressure on these companies
even before the Asian debacle," Zacks said.
Still, some technology stocks, particularly in the software
industry, remain attractive. Stocks like PeopleSoft Inc., SAP
AG and Baan Compay NV could continue to thrive, since their
software products help big companies run their operations more
efficiently, Rohal said.
And the long-term outlook of the semiconductor equipment
makers looks "pretty good," because the semiconductor industry
will have to spend lots of money in coming years on new types
of devices to make smaller and faster chips, Hurwitz said.
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Copyright 1997, Reuters News Service |
