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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Mason Barge who wrote (5703)	6/5/1998 10:58:00 AM
From: Ian@SI	Read Replies (2) \| Respond to of 10921

MARKET PLACE Despite Bad Forecasts, Investors Still Buying Technology Stocks -------------------------------------------------------------------------------- Related Articles The New York Times: Technology Forum Join a Discussion on The Stock Market -------------------------------------------------------------------------------- By GRETCHEN MORGENSON EW YORK -- Talk about denial. Even as more and more corporate managers warned that their second-quarter results were looking grim, investors piled into the stock market. And they piled most heavily into those companies most vulnerable to near-term earnings disappointments -- the technology group. Credit:The New York Times -------------------------------------------------------------------------------- When business is looking materially different from what Wall Street analysts have been expecting -- either up or down -- corporate managers like to warn investors that their expectations may be a bit off. For the second quarter of this year, more of these so-called pre-announcements are not only coming in early, they are coming in ugly. As of Thursday, according to Chuck Hill of First Call, which tracks company earnings, 139 companies had publicly given an overview of their second-quarter results. Considering that we still have four weeks to go before second quarter results actually start trickling in, we are running well ahead of where we were last year at this time. That's the early part. Now for the ugly. Of those companies pre-announcing, 58 percent have warned that their earnings will be lower than analysts are estimating. After Thursday's close, for example, Motorola said it was taking a $1.95 billion charge against second-quarter earnings and would report an operating loss. That 58 percent number should raise an eyebrow, according to Hill. He said the split between negative and positive guidance on earnings was usually 50-50. Neither fact from First Call bodes well for the overall market. But the data is particularly ominous for technology stocks. Managements of these companies are the bulk of those issuing warnings. Double denial. These are just the stocks that rallied on heavy buying Thursday. The Standard & Poor's High Technology Composite index rose 2.2 percent Thursday as investors grabbed anything they could in stocks of semiconductor makers, networking companies, personal computer companies and other hardware manufacturers. What gives? Even as grim news continues to come from technology concerns, investors seem to think that all the bad news for the industry is already reflected in these companies' stock prices. In just the last few days, earnings warnings or other gloomy talk have come from technology companies as varied as Motorola; Komag Inc., a disk-drive manufacturer, and Integrated Device Technology, an integrated circuits maker. This on the heels of worries from industry giants like Analog Devices, which makes integrated circuits; Applied Materials, a manufacturer of semiconductor wafers, and AMP Inc., the world leader in connectors. "These are not just some little guys with problems," Hill noted. Of course, investors find these stocks much easier to buy now than they were a few months ago when they were much higher. Even after Thursday's rally, the S&P High Technology Composite was still 8 percent below its high on May 13. But what investors seem not to focus on is that even those technology stocks that have fallen fairly dramatically are nowhere near their lows. Dell Computer, up $4.25 Thursday, to $84.50, is down 14 percent from its May high. But it's still more than double its $38.25 price just six months ago. Sure IBM, up $2.18, to $116.06, is down 7.5 percent from its May 14 high, but it's up 21 percent since March. The S&P High Technology Composite is 23 percent higher than it was in December. These stocks might indeed be cheap if one could be certain that any bad news about their industry or their businesses was already reflected in their prices. But given how glacially analysts respond to bad news, this is highly unlikely. Everybody knows that Wall Street analysts accentuate the positive. And they are not disappointing us now. Earnings at technology companies, these perennial optimists believe, will rebound nicely in the third and fourth quarters. Consensus expectations for third-quarter earnings on First Call's composite of technology companies are an increase of 21 percent. The herd thinks fourth-quarter earnings will rise 15 percent. The only trouble with buying this argument is that analysts' opinions, not completely reliable in good times, are exceedingly untrustworthy in bad times. Wall Street analysts appear to be constitutionally unable to help investors face anything but the cheeriest music. This is not just opinion. A research paper on momentum investing strategies found that analysts are slow to revise their expectations for a company in the face of bad news -- just when you need them most. Another interesting piece of research on analysts' reactions to bad news comes from two associate professors of accounting at the Weatherhead School of Management at Case Western Reserve University in Cleveland. Co-authors Julia Grant and Robert Bricker found that "when earnings surprises were negative, analysts were proportionately more positive in the text of their reports than one would expect," according to Ms. Grant. In other words, when analysts are faced with the harsh reality of reporting a negative number for a company, they work overtime to counter the unpleasantness. No wonder investors get confused. Bottom line? If you follow the advice of Wall Street analysts on your investments, don't think for a moment you'll get the whole truth from them when times are tough. Mark Hulbert, editor of the Hulbert Financial Digest, which assesses the performance of investment newsletters, said: "Bad news rarely comes out in full. Instead it comes out in dribs and drabs. There's a very good likelihood that the first downward earnings revision from an analyst will be followed by another and another and another." Call it Wall Street's version of Chinese water torture.

To: Mason Barge who wrote (5703)	6/5/1998 2:48:00 PM
From: Mark Oliver	Read Replies (2) \| Respond to of 10921

Mason, This post seems like you are talking about ESI? I had been thinking yield improvement was simple survival, but your logic here makes a lot of sense. Would you say there is a similar situation happening in passive components with companies like Kemet laying off and retrenching production? Then, looking at drilling for circuit boards, what are your expectations there? I had been thinking all these troubled segments had one thing in common, yield improvement would equal survival. But, as you say, "capital expenditures for yield don't make much sense if you're increasing your margin from -5% to -1%." Machine vision is also looking like it'll be in the doldrums, but it was interesting to see Gruntal come in and say Cognex was still a good buy despite near term short comings. Anyway, are you still bullish on ESIO? Regards, Mark