Optimism Greets Upcoming Technology Quarter Earnings

By Reuters  |  Print this article Print

All eyes will focus on technology companies in the weeks ahead as Intel, Google, IBM, and others prepare to announce their quarter earnings amid a new sense of optimism. Observers will be listening for guidance from executives as to what to expect in the upcoming quarters.

pagebreak title = Whither Revenue? or Revenue Withers?}

For the broader industry, one of the main concerns is where revenue growth will be found. Overall corporate spending on technology is still at much lower levels than last year, and spending in Europe remains a big worry.

Indeed, only a handful of companies are expected to post revenue growth, including Apple Inc (NASDAQ: AAPL), Google, Verizon Communications Inc (NYSE: VZ), and Amazon.com Inc (NASDAQ: AMZN).

Expectations for the technology industry have nonetheless improved over the past three months. In July, analysts expected tech companies to post a 20 percent decline in third-quarter earnings from a year earlier. Now, they expect earnings to slide just 14 percent, according to data from Thomson Reuters.

Stock prices underscore the optimism. The Morgan Stanley Hi-Tech index of major tech stocks is up around 55 percent this year and 19 percent since the beginning of July. While the Standard & Poor's 500 has kept pace over the past three months, it is still up a more modest 18 percent this year.

Most likely, only hefty earnings beats or rosy forecasts will keep that sort of momentum going, analysts said.

Along with quarterly earnings, investors will be keen to hear any commentary on consumer demand ahead of the holidays and about a hardware refresh cycle by businesses that is expected to begin next year.

Helped by healthier consumer spending, global semiconductor sales rose 5 percent in August from July. That marked a sixth consecutive month of sequential growth.

Corporate demand is another matter, and has been the question dogging the tech sector for months. Analysts say financial uncertainty is still constraining some budgets for this year and next.

Still, many are predicting a strong refresh cycle will begin in 2010, as corporations upgrade aging PCs, servers and other equipment. Goldman Sachs recently lifted its 2010 global tech spending forecast to 4 percent growth from 2 percent. It still expects an 8 percent contraction in 2009.

"We're still kind of in that iffy territory where companies are going to do a little bit better, but whether they do better than expectations, that's a tougher question," said Avi Cohen, managing partner of Avian Securities.

He said that while things look "very good" for the PC business in the third quarter, he expects that "guidance will be a little more guarded from the enterprise side."

Manufacturers such as Hewlett-Packard (NYSE: HPQ) and suppliers like Intel and hard drive maker Seagate Technology (NASDAQ: STX) are preparing for the crucial holiday season and the most anticipated event on the tech calendar this fall: the October 22 launch of Microsoft's (NASDAQ: MSFT) Windows 7.

The operating system has had favorable reviews and is expected to trigger demand for new PCs and laptops from consumers and eventually from businesses.

Earnings season will also play out against a backdrop of mergers, a clear sign of optimism, analysts say.

Few expect the M&A market rush -- including Dell's (NASDAQ: DELL) deal for Perot Systems (NYSE: PER), Xerox's play for Affiliated Computer Services (NYSE: ACS), and Cisco Systems' (NYSE: CSCO) bid for Tandberg (OSL: TAA) -- to die down any time soon.

(Reporting by Gabriel Madway; Editing by Paul Thomasch and Derek Caney) 


Submit a Comment

Loading Comments...