Technology sector shows signs of renewed life
By Nicole Volpe
<<NEW YORK, May 2 (Reuters) - The battered technology sector showed signs of renewed life on Wednesday as analysts and company executives said months of bad news could finally be coming to an end.
Hopes for a turnaround and more postive comments from analysts and executives spurred gains in stocks of companies from networking giant Cisco Systems Inc. (NASDAQ:CSCO) to computer chip maker Advanced Micro Devices Inc. (NYSE:AMD)
"People were sensing a deterioration and that things were getting worse at a faster pace in the first-quarter. Now it seems like they have stopped getting worse or they are getting worse at a slower pace," Steven Milunovich, technology strategist at Merrill Lynch said.
"It's like we've stopped hitting our head against the wall, which feels good," he said at the Merrill Lynch Hardware Technology conference here.
Milunovich, one of Wall Street's most influential technology analysts, said that he was still cautious about whether a recovery in technology stocks was beginning, and that he would "go light" on such stocks.
Investors betting tech stocks would be the first to benefit from a resumption of healthy economic growth, however, pushed the Nasdaq composite index to the highest levels in nearly two months.
"In an environment like this, it's possible that every piece of bad news feels like it's the last piece of bad news," said Kevin Landis, portfolio manager with San Jose, California mutual fund company Firsthand Fund.
The technology-laden Nasdaq Composite Index rose for the fourth straight session, gaining 52.34, points, or 2.41 percent, at 2,220.58 -- its highest level since March 7 and a 35.5 percent surge since it hit a two-year low on April 4.
CHIP INDUSTRY RECOVERY LATER THIS YEAR
Among the news on Wednesday, the Semiconductor Industry Association reported worldwide sales of computer chips fell 7 percent in March due to an oversupply of chips and a weaker economy, but said a recovery was likely later this year.
"We continue to believe that the industry will complete the inventory correction in the third quarter and the recovery will commence in the fourth quarter," SIA President George Scalise said in a statement.
Worldwide sales of computer chips in March fell 7.1 percent to $14.4 billion from $15.5 billion in February, the San Jose, Calif.-based SIA said on Wednesday. The March sales were off 4.5 percent from $15.07 billion a year ago.
Semiconductor makers have posted weaker profits in the first quarter with few positive signs in sight, amid slow sales of everything from personal computers, to wireless phones, to networking equipment.
At the same time, an upbeat outlook from some major technology players, including top chip maker Intel Corp. (NASDAQ:INTC), has helped build the current, growing optimism for a recovery in the second half of the year.
The stock of networking giant Cisco Systems Inc. (NASDAQ:CSCO) surged more than 12 percent in heavy trading after an influential analyst said the large corporation networking market in North America, a big segment for the world No. 1 networking firm, was stabilizing.
Cisco stock rose $2.20, or 12 percent, to $20, on volume of nearly 171 million shares. Over the past year, Cisco has underperformed the Nasdaq 100 Index by about 46 percent.
In a research note, Morgan Stanley analyst Christopher Stix said there were indications the large corporation, or enterprise, networking market in North America is stabilizing, which gave the shares momentum in early trade.
Stix, however, retained a neutral rating on networking giant Cisco's stock, adding he could not justify its valuation
Other networking companies, including Juniper Networks (NASDAQ:JNPR), Redback Networks Inc. (NASDAQ:RBAK), Sycamore Networks Inc. (NASDAQ:SCMR), Foundry Networks Inc. (NASDAQ:FDRY) and Extreme Networks Inc. (NASDAQ:EXTR), also jumped on Wednesday.
PC INDUSTRY BOTTOMED OUT
Analysts and executives now say that the PC industry seems to have bottomed out and the second quarter will likely mark the trough for that industry and the portion of the chip industry that is tied to the PC business,
"The communications business is not recovering yet, but the PC and computers business is now beginning a slow recovery," Advanced Micro Devices Chairman and Chief Executive Jerry Sanders said at the conference in New York.
"This means to me that the second quarter is the trough for the entire chip industry," Sanders said.
Shares of Advanced Micro, Intel's principal rival in microprocessors, gained $1.09, or 3.4 percent, to $32.95 on the New York Stock Exchange.
The stock of data storage products company Brocade Communications Systems Inc. (NASDAQ:BRCD) soared $6.98, or 16 percent, to $49.94 on Nasdaq, after Chief Executive Officer Greg Reyes said his company was poised to meet or exceed Wall Street's profit expectations for its fiscal third quarter as customers rekindle technology projects.
"It feels a lot better today than it did," Reyes said at the conference. "My sense is what is happening is that things are getting approved on a project basis."
Communications chip maker Broadcom Corp. (NASDAQ:BRCM) said it saw strength in its cable set-top box and home networking businesses, but said the outlook was still hard to discern.
"I'd say right now we're still seeing order delays," Broadcom Corp. Chief Executive Henry Nicholas said in an interview in New York. "Visibility is not great."
Broadcom stock rose $6.40, or 15 percent, to $48.36.
Nicholas also said he expects the data networking industry, which has been caught up in a slump for months, would see its next period of growth in the fourth quarter.
While there are signs of improvement overall, analysts cautioned that there was still room for more bad news.
"There are glimmers of improvement, I don't think anyone is willing to call a trend yet. Although I think the market is reacting, this could absolutely be a head-fake," Merrill Lynch analyst Thomas Kraemer said.>> |
