Tech companies start earnings season on a low

By Elizabeth Wine
FT.com
July 10 2004

Wall Street hit its lowest levels since May this week as investors showed acute disappointment at a raft of warnings from the technology sector that kicked off the second-quarter earnings season.

In addition to the unexpectedly large batch of reduced earnings and revenues forecasts, investors faced a slew of glum dispatches from the retail sector and a surging oil price.

But by yesterday's close the tide was turning as investors welcomed good results and rosy comments from General Electric. GE shares rose 1.6 per cent on the week to $32.17.

German software giant SAP spread cheer by raising its revenue guidance, citing stronger sales. The announcement soothed fears that business spending was slowing. SAP's American depositary receipts gained 5.5 per cent to $40.04 by the close yesterday but saw a loss of 3.9 per cent on the week.

A large part of the markets' problems appeared to stem from investors' extremely high hopes at the beginning of the week. Many bought into Wall Street's forecast that Corporate America would continue its streak of 20 per cent year-on-year earnings growth.

If achieved, it would be the fourth consecutive quarter of at least 20 per cent profit increases for the S&P 500. It would also mark the first such streak since the peak of the last bull market.

Yesterday, the S&P 500 edged up 0.3 per cent to 1,112.81, but that still left it down 1.1 per cent on the week. The Nasdaq Composite rose 0.6 per cent to 1,946.33, but closed with a weekly loss of 3 per cent. The Dow Jones Industrial Average added 0.4 per cent to 10,213.22 by the close, notching a 0.7 per cent loss on the week.

The week's disappointments started with a profits warning from Conexant, the semiconductor maker, which complained of soft demand. Shares dropped 43 per cent on the week to $2.32.

Other chipmakers fell in sympathy, leaving the Philadelphia Stock Exchange Semiconductor Index 1.3 per cent lower on the week.

Veritas Software dealt technology stocks a further blow by cutting its estimates due to soft US sales. Shares fell 30 per cent for the week to $18.50. PeopleSoft followed suit, slashing forecasts for the second quarter, blaming the uncertainty surrounding Oracle's hostile takeover bid. Shares recovered lost ground to fall just 0.1 per cent for the week to $17.05. Ascential Software spoke for many software companies when it warned of weak results and blamed "cautious" enterprise spending. Shares were off 15.7 per cent to $12.48 for the week.

Other warning casualties included Secure Computing, skidding 40.7 per cent to $6.37, FileNet, down 25.4 per cent to $22.12, Siebel Systems down 18 per cent to $8.11, and BMC Software, 16.7 per cent weaker at $14.75. By the end of the week, the S&P 500 software group had lost 4.6 per cent.

However, investors said yesterday's rosy guidance from SAP went a long way toward disproving the notion that the spate of software warnings signalled an economic slowdown.

Hank Hermann, chief investment officer at Waddell & Reed, said: "I think what's happening is big guys are taking share from the little guys." He added that he would be watching for results from the other big industry player, IBM, due next week.

Investors' grumpy mood even extended to so-called internet darlings, including Yahoo. The portal's profits came in line with analysts' estimates, but failed to impress investors, who have come to expect forecast-beating results. Shares fell 11.3 per cent to $30.11 for the week.

In spite of recent warnings about soft demand, retailers still managed to disappoint investors with same-store sales. The S&P 500 retailing group shed 2.9 per cent on the week, one of the index's worst showings.

Wal-Mart Stores unveiled a weaker-than-expected 2.2 per cent climb in same-store sales, and dropped 0.3 per cent to $51.76 on the week.

Target also came in below forecasts, and paid the price, shedding 1.7 per cent on the day. By the end of the week, shares were down 1.1 per cent to $41.27.

Home Loans Articles, Mortgage Loans Articles, Financial News