Signs of a Market Turnaround!
UPDATE1-Tech execs shake off gloom, predict sunny 2nd half
Wed Apr 18 23:01:00 EDT 2001
(Adds IBM, AMD comments, updates stock prices) By Daniel Sorid NEW YORK, April 18 (Reuters) - The dark cloud that has hung over the technology sector for months showed some signs of lifting on Wednesday after major players in the industry suggested business had hit bottom and would improve in the second half of the year. Stocks rallied across the sector, and the positive sentiment was reinforced after the market closed, when International Business Machines Corp. (NYSE:IBM) reported strong first-quarter earnings and reaffirmed its targets for the rest of the year. No. 1 computer chip maker Intel (NASDAQ:INTC), which ignited Wednesday's rally with its positive outlook the night before, rose more than 20 percent to close at $31.28, helping lift the tech-laden Nasdaq.
The Nasdaq composite index ended 8.1 percent higher at 2,079.44, helped by a surprise half-point cut in official interest rates by the Federal Reserve. "It certainly feels like a bottom," said Tim Ghriskey, portfolio manager of the $4 billion Dreyfus Fund. "The tone we're hearing from management is just much better, and Intel saying that business at the end of March picked up -- and that the pickup is continuing into April -- is very positive." IBM, which reported net income rose 15 percent in the first quarter, reaffirmed a previous target to deliver high-single digit sales growth, excluding currency effects.
IBM stock, which rose $6.80 to $106.50 in regular New York Stock Exchange trading, jumped to $110 after hours. Advanced Micro Devices Inc. (NYSE:AMD), Intel's chief competitor in the microprocessor business, said after the market close on Wednesday it expected full-year profits to match the current consensus estimate of $1.50 per share, and said it expects PC industry unit growth in the high single-digit range for 2001. Top software and personal computer makers, as well as battered dot-com companies, also chimed in with hopeful comments, a sharp contrast to the gloom that has been spreading since late last year.
But Wednesday's rally, which lifted shares of many technology companies by double-digit percentages, could simply be a bump in a continuing downturn, as a similar boost in January proved to be. "We were hearing from companies that things were not getting worse," Ghriskey said, "and then all of a sudden in February, right at the beginning, business had dropped off a cliff again."
STRONGER SECOND HALF?
The shift in the way executives are talking about the future is nevertheless striking. Just a few months after warning that technology spending was slowing abruptly, with no end in sight, Carly Fiorina, chief executive of computer and printer maker Hewlett-Packard Co. (NYSE:HWP), forecast on Wednesday a flat third quarter with strengthening margins. Intel, which in March warned that weaker demand for personal computers was spreading to networking, communications and server sectors, on Tuesday made encouraging comments about its largest business segment.
"In our microprocessor business, given what we saw happening in March gives us a lot more comfort that we'll have a pretty normal second quarter and a seasonally strong second half of the year," Chief Financial Officer Andy Bryant told Reuters. Investors embraced the news as a key indicator of an upcoming recovery. "A very influential, knowledgeable company -- a company who knows better than anyone else -- said we hit bottom," said Brian Salerno, a portfolio manager for the Munder NetNet Fund, which has assets of about $2.5 billion. Salerno said strength among chip makers is good news for pure-play Internet companies such as Yahoo Inc. (NASDAQ:YHOO) and CNET Networks (NASDAQ:CNET), which would reap the benefits of bigger advertising budgets that come with an upturn in the business cycle. Yahoo shares, bouncing back from a low of $11.38 earlier this month, climbed $1.31, or 7.6 percent, to $18.62.
FED CUTS COULD UNLEASH SPENDING Software maker Interwoven Inc., whose products help manage the flow of content on the Web, is also shifting its projections. The company's president, Martin Brauns, told Reuters he expects a downturn in spending on software to bottom out in the second quarter.
Shares of Interwoven Inc. (NASDAQ:IWOV), which were down more than 90 percent from their year high, jumped $4.99, or 44 percent, to $16.36 on Wednesday. Business software makers are set for growth in the second half as companies spend more on information technology, said analyst Sebastian Thomas of Roger Engemann & Associates, a money manager with $9.8 billion in assets. "Right now there's a spending freeze in place as IT budgets are tied to top line revenue growth for many companies," he said. "With the Fed rate cuts and potential monetary stimulus, things look like they're going to improve from here."
Goldman Sachs analyst Tom Berquist said he expects flat or slightly weaker performance for software companies in the second half of the year, with an upturn in the third quarter. "September will be the same with December, being the first quarter where I anticipate any positive guidance," he said. Chip-equipment companies have also held steady over the last several months, surging on the days after major drops. Shares of top equipment maker Applied Materials Inc. (NASDAQ:AMAT) have rebounded after six significant drops since December and are up nearly 40 percent this year.
The Philadelphia Stock Exchange semiconductor index (INDEX:$SOX.X) has rallied in recent days and is now 40 percent above its
52-week low.
But with the earnings season just kicking off, optimism could easily revert into fear. "Everyone's holding their breath for guidance," Berquist said.
(additional reporting by Ilaina Jonas and Siobhan Kennedy in New York and Duncan Martell in San Francisco)
Copyright 2001, Reuters News Service
