Merrill Lynch - Context of its "Warnings" on COMPAQ (I think CNBC has exaggerated them).
Revenue disappointments are possible at Compaq Computer Corp. (CPQ), Hewlett-Packard Co. (HWP), Data General Corp. (DGN), Sequent Computer Systems Inc. (SQNT) and Xerox Corp. (XRX), Milunovich said.
Scroll down to my boldface.
Merrill Analysts Guarded On Enterprise Software Sector's 1H
Dow Jones Newswires
By Maria V. Georgianis
NEW YORK (Dow Jones)--Merrill Lynch & Co.'s technology analysts don't expect many first-quarter upside earnings surprises and forecast a mixed view for sector fundamentals during the balance of the year.
Several sectors that experienced tough conditions in 1998 have appeared to have bottomed out, such as semiconductors, capital equipment and electronic components, analysts said during an investor conference call Wednesday.
Other areas such as enterprise software seem to face more difficult times ahead as the year 2000 computer glitch cuts into businesses' technology spending on software.
Merrill Lynch enterprise software analyst Chris Shilakes said the first quarter has been disappointing for some names in the enterprise software sector with the impact from the year 2000 glitch being "bigger than anticipated."
Companies such as Peoplesoft Inc. (PSFT), Documentum Inc. (DCTM), and Network Associates Inc. (NETA) have preannounced downside first quarter expectations, citing the year 2000 problem as one of the reasons behind their shortfalls.
Shilakes said he remains "guarded for the first half in 1999" on the enterprise software sector.
No further information is available at this time.
The first quarter for computer hardware companies is always difficult compared with the fourth quarter, said server and PC hardware analyst Steve Milunovich.
Milunovich said PC server demand "continues to be good," and the year 2000 glitch seems to be helping, not hurting hardware sales. The analyst said he "doesn't expect a dramatic drop-off (in demand) in the second half."
But in the first half of 2000, corporate buying could shift demand to software from hardware, he said.
Hardware companies that could report upside earnings suprises for the first quarter include International Business Machines Corp. (IBM), EMC Corp. (EMC), Lexmark International Group (LXK), Unisys Corp. (UIS), and Network Appliance Inc. (NTAP), Milunovich said.
Revenue growth for hardware companies during the quarter is mixed, according to Milunovich.
On the positive end, Sun Microsystems Inc. (SUWN) is accelerating its revenue growth, which could reach 20% in the first quarter, the analyst said.
Revenue disappointments are possible at Compaq Computer Corp. (CPQ), Hewlett-Packard Co. (HWP), Data General Corp. (DGN), Sequent Computer Systems Inc. (SQNT) and Xerox Corp. (XRX), Milunovich said.
Over the long-term, hardware revenue growth rates will range between 5% and 7%, he predicted.
No further information is available at this time.
The leading Internet companies such as America Online Inc. (AOL), Amazon.com Inc. (AMZN) and Yahoo Inc. (YHOO) aren't expected to report any negative surprises, said Internet analyst Henry Blodget.
Site traffic should be seasonally strong and advertising could be up 10% or more sequentially at the leading Internet companies, but flat or down at secondary ones, Blodget said.
Yahoo, which reports Wednesday after the close, could beat analysts' consensus view of 8 cents a share, by 2 cents to 3 cents, Blodget said. Revenue could also come in at $85 million, or higher than the $77 million he is targeting, the analyst said.
The Internet portal reported fourth quarter earnings of 11 cents, on a split-adjusted basis. Internet companies are more meaningfully measured by comparisons with sequential quarters because of the sector's rapid growth rates.
AOL's subscriber growth during the quarter could be the strongest the company has ever had, Blodget said.
Revenue growth in the recovering semiconductor industry should slightly top 10% in 1999, said Merrill Lynch semiconductor analyst Joseph Osha. The analyst said he expects accelerating improvement in unit demand for PC microprocessors, aided in part by the growth in the sub-$1,000 computer segment.
Unit demand for PC chips should be stronger than forecasters are predicting, Osha said, adding that he expects demand to increase by 21% this year over 1998.
Osha said he expects Intel to report first quarter earnings of $1.10, in-line with the First Call Corp. view. For the year, the analyst is estimating earnings of $4.73, above the First Call expectation of $4.68.
In wireless equipment, "the sales environment looks stable," said analyst Michael Ching. First quarter revenue will be up 11% on average and earnings per share will increase 10%, compared to year-ago declines of 9%, he said.
The best-positioned companies in the sector include Motorola Inc. (MOT), Qualcomm Inc. (QCOM), Nokia Corp. (NOKA) and DSP Communications Inc. (DSP), Ching said.
Computer services companies remain one of the safest havens for technology investors because of the group's healthy and predictable earnings growth, according to analyst Stephen McClellan.
The standout members of the group include Computer Sciences Corp. (CSC), Convergys Corp. (CVG) and DST Systems Inc. (DST), McClellan said. Electronic Data Systems Corp. (EDS), which will report weak results in the first quarter, is a company to watch because of its new chief executive's focus on turning around the company, he added.
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