Lower High-Tech Profits Expected; Strong Dollar Cited
Technology companies are expected to report disappointing second-quarter earnings, but the domestic industry’s problems do not signal a long-term slump like the one it underwent three years ago.
More than a dozen companies--ranging from chip maker LSI Logic Corp. to Amdahl Corp., a manufacturer of large mainframe computers--have warned that they expect sharply lower second-quarter results.
But the relatively weak results are not from an underlying slowdown in computer sales, analysts said. In fact, they said, orders are holding up relatively well.
“What slump?” said S.G. Warburg analyst David Wu. “The (personal computer) business isn’t dead like it was in 1985 and ’86. The mainframe business is going close to double-digit growth.”
Rather, analysts surveyed by Reuters said, a stronger dollar will cut earnings for computer makers, whose foreign sales average 50% of revenue. Weaker foreign currencies make sales in those countries worth less to U.S. companies.
Short-Term Problems
In addition, several firms faced short-term management and production problems in the quarter, analysts said. In some cases the problems related to a surge in orders.
The world’s largest computer maker, International Business Machines Corp., is expected to earn $2.20 to $2.30 a share for the quarter. In the year-ago period IBM earned $1.63 a share, but that included a charge of $600 million or 61 cents a share for restructuring operations, analysts said.
Other mainframe makers are undergoing structural troubles. Amdahl has said it expects second-quarter income to drop 25% to 35% despite a rise in revenue. Analysts project that it will earn 30 to 36 cents a share, off from 48 cents a year ago.
Control Data, which shut its supercomputer operation and is selling its disk storage unit, is expected to lose $10 to $12 a share but earn 5 cents a share excluding large write-offs of the discontinued operations.
Analysts expect Cray Research Inc. to earn 25 cents a share, down from 61 cents a year earlier.
Minicomputers, mid-size machines with less storage capacity than mainframes, are one area that has been sluggish.
Optimism Voiced
Digital Equipment Corp., a leading maker of minicomputers, should earn about $2.65 per share for its June quarter, down from $3.08 a year ago, analysts said.
Analysts said companies may lose up to 10% of their foreign sales in dollar terms, although most hedge currencies. But many voiced optimism nevertheless.
“There’s plenty of good news. I’m astounded by all the bearishness on the street,” said Kimball Brown, an analyst for Prudential-Bache Securities.
Analysts said sales of workstations and desktop computers are growing at 20% or more. Compaq Computer Corp. is expected to gain the most from the boom, with quarterly earnings rising to about $2.05 a share, up from $1.30 a share last year.
But two companies considered leaders in this area--Apple Computer Inc. and Sun Microsystems Inc.--have warned that production difficulties and failure to meet demand for high-end products will curtail income for the quarter.
Apple’s earnings should range from 70 cents to 75 cents a share, nearly unchanged from 71 cents a year ago, analysts said.
Sun has said it would earn significantly less than its 33 cents a share last year and might even post a loss.
‘It’s Frustrating’
“It’s ironic that both Apple and Sun have very strong demand for their products and manufacturing problems keep them from meeting demand,” said Oppenheimer and Co.’s Ed Spelman. “It’s frustrating for investors, even when you pick the company with the right products this can happen.”
In the last industrywide downturn in 1985 and 1986, computer industry profits plunged due to overcapacity and weak product offerings, analysts said.
The most stable high-tech area has been telecommunications. Analysts expect American Telephone & Telegraph Co. and MCI Communications Corp. to benefit from 13% long-distance telephone growth.
“Long-distance is a far better business than computers at the moment,” said Gregory Sawers of Sanford C. Bernstein & Co.
In the quarter, analysts expect AT&T; to earn 65 cents a share before a 7-cent charge, up from 55 cents in the 1989 quarter, and MCI to earn 54 cents to 56 cents a share versus 20 cents a share last year.
