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To: yard_man who wrote (7999)	7/25/2010 10:52:54 PM
From: Hope Praytochange	Read Replies (1) \| Respond to of 220217

Tech Raises Caution Flag For Second Half By BRIAN DEAGON, Posted 07/23/2010 06:42 PM ET After blowout quarters from the likes of Apple (APPL), Intel (INTC), Microsoft (MSFT) and VMware (VMW), many analysts expect sales and profit growth will slow in the second half of 2010 for many tech sectors. "We expect the outlook to turn more tempered," said Bill Whyman, technology analyst at International Strategy & Investment. Early this month, the Semiconductor Industry Association, the main tech trade group, also said growth would slow in the second half. The main tech trade group and Whyman are leery of a global economy that has encountered challenges on its way to recovery. Expectations of slower earnings growth are already clear. Aggregate earnings-per-share growth for tech companies in the second quarter is currently at a high 64%. But that will slide to year-over-year growth of 30% in the third quarter and 13% in the fourth quarter, according to the consensus estimates of analysts polled by Thomson Reuters. One reason, though, is tougher comparisons. The recovery that kicked in during the second half of 2009 means companies will have a higher bar to jump in the third and fourth quarters of this year to maintain earnings acceleration. No Strong Consensus "It doesn't seem to me like analysts are expecting any sort of major dip in tech earnings," said John Butters, director of research at Thomson Reuters. Indeed, there is no consensus of a major slowdown, or any slowdown. But the failures of some tech leaders, including IBM (IBM) and Texas Instruments (TXN), to meet analyst sales views last quarter helped set a generally cautious outlook among tech observers. "I'd like to be more positive on tech, but our research shows we need a catalyst to unlock more growth," Whyman said. "The argument is not that things are bad but that we've peaked and are likely to see slowdowns." Whyman projects tech industry revenue growth of 10% in the second half, compared with 16% growth in the first half. It's not possible to paint all of tech with the same broad stroke, says Andrew Bartels, an economist and analyst at Forrester Research. "We're still relatively bullish for the tech economy, but there will be some industry sector rotation," Bartels said. "The growth will shift from the hardware market into software and services. "A lot of what happened in the first half was driven by replacement of old equipment like servers and PCs. Businesses have run very lean for the last two or three years and the stuff was getting old and needed to be replaced." That trend showed up in the solid earnings reports of companies such as Microsoft (MSFT), where sales for its dominant Windows operating software unit soared 44%, and No. 1 chipmaker Intel (INTC). Intel called it the best quarter ever in the company's 42 years, with highest sales, per-share profit, gross profit margin, operating profit margin and revenue per employee. PC Unit Sales Decline PC unit shipments soared 24.4% in the first quarter and 20.7% in the second, according to research firm Gartner. It sees growth slowing, but not by much, forecasting a rise of 19% this quarter and 17% in the fourth. "Overall it looks pretty good, but we are taking a cautious position," said Gartner analyst Mikako Kitagawa. Analysts and executives say red flags include high levels of government debt worldwide, the potential for financial upheaval in Europe and sagging consumer confidence. PC component sectors seem to have challenges, Whyman says, naming disk drive makers Seagate Technology (STX) and Western Digital (WD) and memory chip maker Micron Technology (MU). "The PC storage and memory weakness are at odds with stronger reports form Intel and Microsoft," he said. When Seagate posted earnings on Tuesday, CEO Stephen Luczo said in a conference call with analysts that global demand for storage was strong in the past year but "demand throughout the industry began to slow" in the second quarter. "Broader macroeconomic conditions deteriorated during the quarter, particularly in Europe," he said. Luczo also said "there are many conflicting data points concerning the strength of second-half growth." He added, "We have shifted our view from one where we might be accelerating through the second half of 2010 to one of more modest momentum." SIA President George Scalise said much the same in a statement earlier this month, when the trade group announced strong 48% global chip sales growth for May compared with May 2009. But, warned Scalise, macroeconomic issues "bear watching in the second half."