The Day Ahead: Techs bullish on earnings season
Published: 10 Apr 2000 11:44 BST
Given last week's trading volatility, you'd think the tech sector was a house of cards waiting to crumble. You would have been wrong. Earnings season starts this week and all of the early indicators point to strong results.
It's the so-called earnings confession season, and many companies are happy to preannounce their positive outlooks. First Call is expecting solid results when companies begin reporting earnings in earnest this week.
Chuck Hill, First Call's director of research, notes that analysts are bumping up estimates leading up to major earnings. In recent quarters, analysts have lowered the estimate bar for companies.
"It's early, but it's shaping up to be an exceptionally good quarter," said Hill.
So far, profit warnings have only accounted for 43 percent of the total number of preannouncements. Typically, bad news accounts for 50 percent to 57 percent of the total.
In addition, investors should keep in mind the "no news is good news" rule. Tech bellwethers such as Lucent, which issued a profit warning last quarter, have indicated their earnings are on target.
Advanced Micro Devices, which has had a history of profit warnings, said its first quarter sales will top $1bn (£620m). The sales even surprised AMD execs -- they predicted sales to slide because of seasonality. An upside surprise is highly likely.
And when Western Digital, a much maligned disk drive maker, said it would top estimates you knew things were getting weird. It gets even more weird when similar companies such as Maxtor and Komag issue bullish outlooks.
Contrary to popular belief, not all Internet companies are cash starved and ready to disappear. Sure, bellwether Yahoo! reported a stellar quarter, but the youngsters aren't doing so bad either.
For examples look no farther than Ariba. This hot business-to-business e-commerce company said revenue would be significantly higher in its second quarter and hit the $36m to $38m.
Given the revenue growth Ariba is likely to top First Call estimates. Ariba is expected to report a loss of 8 cents a share in the second quarter. PurchasePro.com also said it would beat estimates calling for a loss of 28 cents a share.
And it's not just the B2B guys enjoying a little success.
Autoweb.com said its expects to report sales of between $14m to $15m in the quarter, roughly 5 to 10 percent above most analysts' estimates. Autoweb said it will pare its losses because it has cut costs. Autobytel.com also sees an upside surprise.
L90, an Internet advertising company, also said it will top estimates. L90 said it expects first quarter system revenue ranging between $8m and $9m, well ahead of the consensus revenue estimate of $5.8m.
Other tech companies that usually don't make it on the radar screen are also predicting upside surprises.
Fairchild Semiconductor International raised estimates not once, but twice. On Tuesday, Fairchild said sales are surging and growth prospects look good.
Avnet, a electronics component distributor, said it will top estimates by at least 10 percent. Avnet's outlook shouldn't be a surprise since Arrow Electronics, the largest distributor of electronic components, said it will easily beat Wall Street estimates for its first quarter.
That roundup is just the beginning. Investors will have a lot to cheer about in the next three weeks.
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