July 14, 2010 / 12:58 AM / 9 years ago

Tech shares rally on Intel earnings

NEW YORK/HONG KONG (Reuters) - The shares of chip and PC makers jumped on Wednesday on strong results from global technology bellwether Intel Corp (INTC.O), pointing to potential upside for the sectors in quarterly reports due in coming weeks.

A shadow is cast on an Intel advertisement at the Computex 2010 computer fair in Taipei June 1, 2010. REUTERS/Pichi Chuang

Personal computer makers such as Hewlett-Packard Co (HPQ.N) and Dell Inc DELL.O, as well as networking giant Cisco Systems Inc (CSCO.O), rose in morning trading, one day after Intel said solid demand for PCs and servers helped lift its results.

The U.S. gains extend momentum from Asia, where Samsung Electronics Co Ltd (005930.KS), the world’s top maker of DRAM memory chips, rose 3.5 percent to a three-week high, while leading contract chipmaker Taiwan Semiconductor Manufacturing Co Ltd (TSMC) (2330.TW) closed up 1.3 percent.

Acer Inc (2353.TW), the world’s No.2 PC brand, closed 6 percent higher at a two-month high.

“Intel has given investors that boost of confidence they need,” said Angela Hsiang, an analyst at KGI Securities in Taipei. “While there are still broad fears about the wider economy, investors were looking for an excuse to buy and Intel provided that.”

The tech sector’s strength defied weakness in broader markets, which were weighed down by data showing a second straight month of declining U.S. retail sales.

“Server strength and corporate PC refresh activities should keep the PC demand story robust into 2011 and we could look to get constructive on shares as earnings season settles out,” said analyst Craig Berger of FBR Capital Markets.

On Tuesday, after the U.S. market closed, Intel, the world’s largest chipmaker and a dominant supplier of PC chips, posted margin and revenue forecasts that blew past Wall Street expectations, helping lift its shares 7.1 percent in extended trading [ID:nN12197658]. Intel shares were up only about 3 percent on Wednesday on Nasdaq.

Dutch chip equipment maker ASML Holding NV (ASML.AS)(ASML.O) added to the optimism on Wednesday when it raised its full year sales outlook as it sees robust demand for its machines that produce chips for PCs and smartphones.

Intel’s outlook helped raise expectations that technology spending could remain strong, even as broader fears about the Euro zone, a jobless U.S. recovery and a cooling of Chinese growth weigh on the sector.

“People are beginning to think the second half may not be as bad as they’d feared and this is boosting Toshiba Corp (6502.T) and the technology sector as a whole,” said Takeo Miyamoto, an analyst at Deutsche Bank in Tokyo.

Asia’s top technology companies such as TSMC and Samsung Electronics are likely to see revenue grow by about 35 percent in the second quarter from a year earlier, according to Thomson Reuters data, coming off a weak 2009 that was hard hit by the global financial crisis.

Trading volume was strong on most counters. Some 31.9 million Acer shares changed hands in Taipei, the highest level in about six weeks. Some 663,692 Samsung Electronic shares were traded in Seoul, the highest since early May.

Other technology plays also posted strong gains.

Within the DRAM sector, Japan’s Elpida Memory Inc 6665.T rose 3.6 percent, while South Korea’s Hynix Semiconductor Inc (000660.KS) rose 3.4 percent. Contract chipmakers United Microelectronics Corp (2303.TW) rose 3.1 percent.

Other PC issues, including Lenovo Group Ltd (0992.HK) and Asustek Computer Inc (2357.TW) also rallied to firmer closes.

“The key now is to look at Microsoft Corp (MSFT.O) and International Business Machines Corp’s (IBM.N) earnings in the next two weeks,” Hsiang said. “If those come out strong, we’re probably in line for a strong rally.”

The second half of the calendar year is usually the strongest season for most technology brands, as students prepare to return to school after the summer holidays and ahead of the peak year-end shopping season.

Despite the buoyant mood, some analysts warned the party could be short-lived if oversupply and a faltering economy lead to a weaker pricing environment that could weigh heavily on the company margins and revenue.

“I remain more cautious about the third-quarter outlook as chip prices are seen weakening in the second half,” said Han Seung-hoon, an analyst at Korea Investment & Securities.

Samsung is set to report its quarterly earnings on July 30, while TSMC is due to report on July 29. Acer and Lenovo typically report their June quarter results in August.

Additional reporting by Baker Li in TAIPEI; Jungyoun Park in SEOUL, Isabel Reynolds in TOKYO; Franklin Paul in NEW YORK; editing by Chris Lewis, Valerie Lee and Andre Grenon

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