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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (36623)	4/3/2002 12:26:14 PM
From: j g cordes	Read Replies (2) \| Respond to of 68609

A recovery depends on increased demand, and when a high-flier like PeopleSoft can't come close to its revenue targets, it says customer spending is in doubt this quarter, and at least one more after that. "It isn't a good sign for the rest of the year," says Walter Casey, co-manager of the One Group Technology Fund, with $40 million in assets. "As we move on, tech budgets are not that strong....In the middle of the summer, people aren't going to cancel their vacations to start spending tech dollars." PeopleSoft's (PSFT: news, chart, profile) shortfall is the latest caution on spending trends. When tech giant Oracle (ORCL: news, chart, profile) put up lower-than-expected sales numbers last month, many analysts brushed it aside as a company-specific problem. Then RSA Security (RSAS: news, chart, profile) warned - one of the companies that's supposed to make money hand-over-fist by cashing in on security fears in the post-Sept. 11 world. Shortly after a half a dozen other warnings, PeopleSoft laid one of the biggest eggs so far this year. The dot-bomb survivor that made it through 2001 without adjusting profit or sales targets even once says it'll fall as much as much as 23 percent short of its own revenue estimates. "This is the one stock that just about everybody on Wall Street was saying wasn't going to blow up," said Allan House, analyst with Federated Investors in Pittsburgh. It caused many to start questioning for the first time in months whether the oft-assumed second-half recovery is likely. All of a sudden, the spending rebound seems to be based on hope and hyperbole, not supply and demand. Consensus seems to say the first quarter of 2002 will be the same or slightly worse than the fourth quarter of 2001. And so far, many analysts see the second quarter roughly in line with the first. Beyond that, we only know that there's little solid evidence to suggest increases in top-line growth. One of the few suggestions to the contrary is a Deutsche Bank/ CIO Magazine poll this week that projects tech spending will increase 7.7 percent in the next 12 months, up from 5.3 percent from the prior 12 months. It expects security software to be the largest beneficiary. But such a small boost in overall spending really isn't saying much. Besides, the poll likely reflects optimism ahead of a string of first-quarter warnings that hit hardest in tech. The tech warnings matter to spending projections because the industry feeds on itself more than people realize. About 40 percent of all tech expenditures come from the financial services and telecom industries, as well as other tech companies, Casey says. Outside of tech, the story is much the same. Customers need to see hard proof that their own business is improving before they spend on tech projects, especially the expensive long-term ones. Tech isn't as strong as many people thought it was just a month ago. We're now learning that we were fooled by a December quarter that benefited from spending delays in the third quarter, due to the Sept. 11 terrorist attack. Casey argues that the rebound in tech shares after Sept. 11 was a reflex reaction "as things got pushed out until the fourth quarter." The first quarter won't continue a slow climb out of the tech slump. And looking ahead, second-half profit and sales estimates now are being questioned as far too high. What's worse, increased violence in the Middle East could make energy much more expensive during the high-demand summer months, hurting profits of both tech companies and their customers. If the economy is as strong as GDP suggests, tech spending might start to come back in the fourth quarter. IF it does, we'll know early, based on sales of computer hardware, and revenue at companies that do systems integration, such as IBM (IBM: news, chart, profile), EDS (EDS: news, chart, profile) and Computer Sciences (CSC: news, chart, profile). But we should be wary of history. Last year, Wall Street spent months saying the big tech recovery was coming in the second half. We're still waiting. Mike Tarsala is a San Francisco-based reporter for CBS.MarketWatch.com.