Tech earnings growth running out of steam

By Jim Finkle

BOSTON (Reuters) - U.S. technology companies have posted stronger quarterly profit growth than any sector except for oil, but investors fear that cracks are emerging as clients in troubled industries like finance, retail and construction reduce IT spending.

This week, business software maker VMware Inc (VMW.N: Quote, Profile, Research, Stock Buzz) issued a revenue warning, and Cisco Systems Inc (CSCO.O: Quote, Profile, Research, Stock Buzz) CEO John Chambers said many of his customers see the economy picking up early next year rather than later this year.

Wall Street is bracing for more bad news over the next few weeks as tech companies release earnings forecasts with their second-quarter reports.

"We're definitely concerned about the September quarter and how we are going to finish the year," said Rich Parower, managing director at J&W Seligman, which has about $4 billion in technology stocks.

"The economy has only gotten tougher," the fund manager said, adding that he expects a rash of third-quarter forecasts to fall short of analysts' estimates.

The tech earnings season starts in earnest next week, with Intel Corp (INTC.O: Quote, Profile, Research, Stock Buzz), IBM (IBM.N: Quote, Profile, Research, Stock Buzz), Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) and Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz) among the companies reporting results.

Analysts on average are looking for quarterly profit growth of about 47 percent from Microsoft, 39 percent from Intel, 35 percent from Google, and 14 percent from IBM, according to Reuters Estimates.

Overall, the 71 tech companies in the S&P 500 Index .SPX are forecast by Wall Street to report an average of 16 percent year-on-year profit growth for the second quarter, according to Thomson Reuters Proprietary Research.