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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Crossy who wrote (11516)	9/10/2003 4:49:07 PM
From: Return to Sender	Read Replies (2) \| Respond to of 95574

From Briefing.com: The Big Picture - Warnings Season Gut Check 10-Sep-03 00:16 ET [Briefing.com - Dick Green] The last three weeks of the calendar quarter are typically known as earnings warnings season. During that time, companies that aren't going to hit Wall Street earnings estimates announce a warning to that effect. This year, there might not be many warnings. That doesn't mean there aren't risks. Third Quarter Economic Data Has Been Stronger Than Expected Earnings warnings season is often a period of extreme nervousness for investors. Not only can a specific warning take a stock down sharply, but it can also create fear that companies in that sector will experience similar troubles, and also warn. In prior years, the market often went down during earnings season. This year, circumstances are different. Specifically, the economy is in a strong cyclical upturn. Virtually every economic release has come in stronger than expected for July and August. In particular, retail sales reports have been very strong. So have reports on orders related to business investment. These are signs that revenue numbers for consumer and business-oriented firms are, overall, likely to come in at or above expectations. The only economic series that has been weak is the employment data. In the short term, that simply means that businesses are keeping costs under control. It is not an indicator that will correlate with companies missing quarterly estimates. There Have Been Fewer Warnings The stronger than expected economy should lead to stronger than expected financial results at many companies. Few sectors of the economy are experiencing worse business conditions than expected as the quarter started. In fact, the number of earnings warnings so far this quarter is down significantly from last year, as reflected in the table below: Guidance Thru 9/8 each Year Q3 2003 Q3 2002 Upside Guidance 217 336 Downside Guidance (warnings) 190 250 As can be seen, there have been many fewer earnings warnings this year compared to last year. There have also been fewer upside guidance announcements, but that has less impact than the fact that the lower number of warnings has reduced the fear factor that is normally present at this time. In fact, warnings announcements have barely hit the journalist radar screen yet. One reason this may be the case is that there have been no warnings from major firms. By this time last year, AOL Time Warner (AOL), Bell South (BLS), Sun Microsystems (SUNW), Novellus (NVLS), Tellabs (TLAB), Qwest (Q), and National Semiconductor (NSM), among others, had all warned. This year, there have been no warnings that have rocked the market. Problems Could Still Develop The lack of a significant market impact from warnings this year is good news. It is also likely that there will continue to be fewer warnings relative to the experience of prior quarters. That doesn't mean that the market has clear sailing, however. Tuesday, Yahoo (YHOO) slumped badly during market hours when the company reportedly made comments at a Merrill Lynch conference that basically reaffirmed its prior guidance. Texas Instruments (TXN) and Xilinx (XLNX) fell in after hours trading on Tuesday after each essentially reaffirmed guidance for the current quarter. Market expectations have become so great that in-line guidance is being treated as disappointing, and in some cases as a virtual warning. What It All Means It is too early to determine how the market will react to in-line or downward guidance from companies over the next several weeks. Tuesday's action is not particularly encouraging. Still, it is highly likely that the number of earnings warnings will be lower than normal. The semiconductor firms, which can have so much impact on sentiment, are giving generally upbeat guidance. That mitigates a market risk as well. The earnings expectation for the S&P 500 companies in aggregate for the third quarter, which currently stands at 12% year-over-year growth, will probably not come down heading into that quarter, as it typically does. Moreover, Briefing.com believes that earnings will ultimately beat expectations by 2% to 5%, as was the case in both the second and third quarters. It will be another excellent quarter for earnings. The market has built in great expectations, however, and even minor disappointments may now have a disproportionate impact. It is still prudent to be on guard during this earnings warnings season to see if the market once again gets the end-of-quarter jitters. Comments may be emailed to the author, Dick Green, at dgreen@briefing.com. (1) Revenue growth is for the current fiscal year, even if only a partial year, compared to the same period in the prior fiscal year. Hope you have been making a mint Crossy! RtS