Lack of
Preannouncements May
Signal Better...
October 05, 1998, Issue: 810
Section: CRN Business Weekly
Lack Of Preannouncements May Signal
Better-Than-Expected Showing -- Wall Street waits with
bated breath for 3Q high-tech results
Eric Hausman
New York -- The third quarter, which ended last week, proved to be a
disastrous one for stocks, and financial analysts are holding their
collective
breath as the leading high-tech companies prepare to report financial
results for
the three-month period.
By the end of the second quarter, many leading players had warned
Wall Street
that results for the quarter would fall below expectations. But as of
last week,
few companies had provided preannouncements for the third quarter,
leading
some analysts to believe that it may have turned out better than the
second
quarter.
The only major industry company to provide guidance before the end
of the
quarter was Intel Corp., and it had good news.
Last week, however, CBT Group PLC and Fore Systems Inc. were
pummeled
by investors after revealing bad news.
CBT said its earnings would fall short of expectations and its chief
executive
and chief financial officer had resigned. Meanwhile, Fore said revenue
had
fallen below expectations due, in part, to product transitions.
The relatively few number of warnings does not necessarily preclude
widespread bad news, especially since many companies do most of
their
third-quarter business at the very end of September.
"This is a heavily back-end- weighted quarter," said Todd Bakar, an
analyst at
Hambrecht & Quist LLC, San Francisco. "It takes a little longer to
judge their
own confidence. But thus far, it has been a fairly tame quarter."
Kevin McCarthy, vice president at Donaldson, Lufkin & Jenrette
Securities
Corp., New York, said he believes many in the industry may have
emerged
from first-half doldrums in the third quarter.
"I think this may turn out to be a fairly solid quarter," he said.
Barring any further last-minute warnings, analysts will look to
companies such
as Compaq Computer Corp., Hewlett-Packard Co. and Intel to report
next
week.
Jeff Matthews, general partner at RAM Partners LP, Greenwich,
Conn., said
there still could be some surprises. "The big news is going to be the
impact of
the international turmoil on these companies," he said.
The decision last week by the Federal Reserve to slightly lower
interest rates
did not go nearly far enough to fix the problem, Matthews said.
In addition, channel assembly, or the re-engineering of the supply
chain, is
affecting all companies, from those that make product, those that
sell it and
everyone in between, Matthews said.
A lot of those issues go deeper than top-line growth, which may be
strong, said
Matthews. He believes there will be some disappointments that will
not be
realized until after the September numbers are tallied.
Meanwhile, Bakar believes that the fact that much of the PC
inventory talk has
turned to shortages bodes well for the just-ended quarter.
"That is a major positive for the vendor base and everyone
PC-related," Bakar
said. "It means order rates will more closely mirror end-user
[shipments], which
wasn't the case [earlier in the year.]"
Bakar is looking for an even greater improvement among the PC
players during
the traditionally strong fourth quarter.
In addition, a recovery is under way in the storage area, although that
too will be
a slow improvement, Bakar said.
"Storage has gone through a bloody correction, and everyone
suffered major
pains, but it looks like things are starting to get better," he said.
Seagate Technology Inc., with its strong high-end drive business, is
expected to
lead the way in that sector's recovery, he said.
If the high-tech companies report strong results, or even earnings
that are in line
with expectations, there could be a much-needed boost to slumping
stock prices.
During the third quarter alone, the Dow Jones Industrial Average
dropped 12
percent, while the technology-rich Nasdaq index plummeted 11
percent.
And just last Thursday the slide continued, with the Dow losing
another 210
points, or nearly 3 percent, and the Nasdaq suffering one of its worst
days ever,
losing 82 points, or nearly 5 percent.
Nearly every technology company was stung by the sharp decline
last week.
|
