Tech earnings look strong, but may not satisfy

SEATTLE Sun Apr 11, 2010 1:33pm EDT

A laptop in the Intel booth displays information on a new line of Intel ''Core'' processors at the 2010 International Consumer Electronics Show (CES) in Las Vegas, Nevada January 7, 2010. REUTERS/Steve Marcus

A laptop in the Intel booth displays information on a new line of Intel ''Core'' processors at the 2010 International Consumer Electronics Show (CES) in Las Vegas, Nevada January 7, 2010.

Credit: Reuters/Steve Marcus

Related Topics

SEATTLE (Reuters) - Investors are expecting strong quarterly results from major U.S. technology companies over the next few weeks, but a stronger dollar and elevated expectations could mute any effects on stocks.

Tech spending is beginning to creep back, and companies and analysts alike are predicting a new cycle of serious hardware and software buying for the second half of this year.

The question is whether better-than-expected results and bullish forecasts will be enough to move stocks that have already outperformed the broader market recovery, or if a new level of confidence will emerge.

"People are still underestimating the amount that the refresh cycle is going to affect tech companies," Kim Caughey, a senior analyst at Fort Pitt Capital Group said, referring to corporate spending on new technology. "PCs are going to surprise to the upside this year, probably driven by business."

Executives in charge of IT purchasing at corporations are now expecting more than 2 percent growth, on average, in tech spending this year over last, according to a recent Barclays Capital survey. Six months ago, they were expecting 1.6 percent growth, and a year ago they expected a decline.

The consumer is coming alive too, as employment figures show signs of improving. The computer department "has been the busiest area of the store for months," according to one retail survey by a Wall Street analyst.

Worldwide PC spending is now projected to rise 12 percent to $245 billion in 2010, according to tech research firm Gartner. That is much more optimistic than Gartner's previous forecast in December, which called for an increase of only 2 percent.

INTEL LEADS THE WAY

Intel Corp (INTC.O) is the first major tech company to report on Tuesday next week, and often sets the tone for what follows.

"There's no question Intel beats and raises its original guidance," said Wedbush Morgan analyst Patrick Wang.

Signs of strong demand at Intel -- whose chips power three-quarters of the world's PCs -- means the industry is starting to ramp up again, said Caughey at Fort Pitt.

"The PC builders have to order from Intel before manufacturing," she said. "I'm always looking for those forward indicators, and Intel fits that bill pretty well."

More PCs are good news for Microsoft Corp (MSFT.O), which reports earnings on April 22. The fiscal third quarter is sometimes weak for the world's largest software company, wedged between the holiday shopping season and the end of its fiscal year, when many of its big, long-term customer contracts are signed.

But Wall Street is expecting higher profit and sales for the company, helped by the continuing popularity of its Windows 7 operating system.

Apple Inc (AAPL.O), which reports on April 20, said last week it could not make enough of its new iPads to satisfy demand, suggesting it will give further reasons for optimism for the rest of the year. But it may not be enough to keep its stock hitting new all-time highs, as it has for the past month or so.

Google Inc (GOOG.O), reporting on Thursday, is expected to post higher quarterly revenue as the improving economy means more people are searching online for purchases, attracting more advertising. But problems with China, antitrust issues and the uncertainty of its new mobile business may cast a shadow over its outlook.

Each of the sector's big players may be at risk from the recent rise in the dollar, which would hit the value of sales from overseas. Tech outsourcing and consulting company Accenture Plc (ACN.N) -- a reliable proxy for corporate spending -- recently lowered its outlook for the year, despite improving prospects, because of the stronger dollar.

Even if results and outlooks beat expectations, it may not be enough to push shares higher. Last month Oracle Corp ORCL.O issued its strongest sales forecast in more than a year, but still its shares fell from a nine-year high.

After leading the recent stock market rally, other tech companies might find themselves in the same position. The tech-heavy Nasdaq is up nearly 17 percent since the recent market bottom in February, compared to a 14 percent rise in the Standard & Poor's 500.

(Additional reporting by Ian Sherr in San Francisco; editing by Gunna Dickson)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (2)
Story_Burn wrote:
The problem when companies take up 2010 guidance is that Wall Street estimates can get ahead of themselves

Apr 11, 2010 2:17pm EDT  --  Report as abuse
melkat634 wrote:
Who cares!!! My boyfriend thinks the same with me. He- is eight years older than me, lol. We met online at an age gap dating site[_www. A G E R O M A N C E com_]—a nice and free place for Younger- Women and Older Men, or Older Women and Younger Men, to interact with each other. Maybe you wanna check out or- tell your friends.

Apr 11, 2010 7:45pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.