To:mikesloan who wrote (243)
From: John Barendrecht Sunday, Jul 6, 1997 11:28 PM
Respond to of 80032
Investors Jittery about Technology Earnings
By Therese Poletti
NEW YORK (Reuter) - Investors are increasingly jittery about upcoming second-quarter earnings reports for technology companies after a barrage of earnings shortfall announcements which foreshadow a summer slowdown.
This week, earnings get into full swing next week with Motorola Inc. and Advanced Micro Devices Inc. second-quarter reports Tuesday. And PC leader Compaq Computer Corp., which is expected to be among the few winners this quarter, reports on Thursday.
Jitters over the second quarter arose May 30 when technology bellwether Intel Corp. shocked Wall Street, saying its revenue and net income will fall below expectations due to weaker than anticipated demand, especially in Europe.
Intel's news was followed a few days later by Cabletron Systems Inc., a network equipment supplier, which warned that its first quarter would be below expectations, mostly due to a shortfall in international sales, especially in Europe.
Disk drive maker Seagate Technology Inc., issued not one, but two earnings warnings.
Seagate's second statement in mid-June said its fourth quarter would be even below its revised expectations, due to continued weakness in demand for its high-end products.
Other earnings warnings came from semiconductor maker Integrated Device Technology Inc., which cited lower-than-expected demand, mostly in its PC segment, Komag Inc., a maker of thin-film media for disk drives and a customer of Seagate, and most recently Intel chip clone maker Cyrix Corp., which is now expecting a loss.
``I think people are nervous,'' said David Takata, a Gruntal & Co. analyst. ``I think there is a lot of inventory out there.''
Most of the warnings are coming from the personal computer sector, which has been growing at record rates in recent years. Analysts are now looking for more growth in the second half of the year, with the second part lagging the first.
``We had a better-than-expected first quarter,'' said Bill Schaub, an analyst at market research firm Dataquest Inc.
In the first quarter, worldwide unit shipment of PCs were up 15.4 percent. ``If I were to guess which side of the forecast we are on, it would be lighter,'' he said of the second quarter. But he added that not everyone is having a bad quarter and he still sees PCs growing at 19 percent in 1997.
Analysts said there are several factors converging at once in the PC sector, fueling the spring/summer sluggishness.
One is the product transition at Intel, which in May launched its higher powered Pentium II processors and it therefore is cutting prices of its current Pentium and Pentium MMX processors. Its next price cuts will come at the very end of July, so analysts said savvy customers may be waiting for the next round of processor price cuts before buying PCs.
``Expected Intel August price cuts across the processor family may be causing some pause in corporate purchases,'' said Kevin McCarthy of Montgomery Securities, in a note to clients.
``U.S. dealers remain upbeat about current pace of PC sell through (sales through distributors), although we are not expecting many upside Q2 earnings surprises,'' McCarthy added.
In the consumer sector, the lack of any major new ''gee-whiz'' technology is hurting sales and average prices of PCs continues to fall, especially with more sub-$1,000 PCs.
Retailers are scaling back on the number of models they sell. Last week Compaq upgraded its Presario PCs for home, including two under $1,000 models, but eliminated some models.
``What we are beginning to see is more consolidation in the marketplace,'' said Walter Winnitzki, a PaineWebber analyst.
``Some of the best positioned companies are doing a whole lot better than the rest of the marketplace and others are seeing a big decline.''
Analysts said another factor is that Compaq and other vendors, including Packard Bell NEC are shifting their product manufacturing strategies to include build-to-order capabilities, as direct marketer Dell Computer Corp. continues to grow at the fastest rates with its lower cost business structure. Compaq has said its moves will lead to lower PC prices throughout the industry.
``Broadly, I think the quarter ended better than it started,'' said Mark Specker, a SoundView Financial analyst.
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