Tech Sector’s Woes Don’t Touch All Firms
Is there a general earnings-growth problem in the technology sector?
A swarm of warnings from major tech companies in recent weeks would seem to suggest that’s the case. Yet some reports out Wednesday reminded Wall Street that tech is a very large sector, where a lot of companies apparently still are doing quite well.
On the downside, Dell Computer said after markets closed Wednesday that its third-quarter sales were coming in about 3% below what it expected.
Dell, the world’s No. 2 personal computer maker, said European sales were hurting--echoing what chip giant Intel Corp. and personal computer rival Apple Computer cited in September when they forecast weaker-than-expected results.
Dell also said sales to small-business customers have been below what it expected.
The firm, however, said it still expected to meet earnings estimates for its third quarter, which ends Oct. 31. Analysts’ average estimate for the quarter is about 25 cents a share. But Dell said fourth-quarter earnings per share could be 1 to 2 cents below its targets. The shortfall might seem minor, but Wall Street pummeled the stock anyway: Dell shares (ticker symbol: DELL) plunged $3.19 to a two-year low of $25 in after-hours trading Wednesday.
Tech-sector analysts, while agreeing that the evidence lately suggests a continuing slowdown in PC sales, said Dell’s news--and other recent tech warnings--don’t paint a complete picture of the tech sector.
For example, PC rival Gateway Inc., which sells relatively few computers in Europe, said Wednesday that it told analysts as recently as last week that it remains comfortable with third-quarter earnings estimates.
In regular trading Wednesday, Gateway (GTW) rose $1.90 to $51.90 on the New York Stock Exchange.
Two other earnings announcements Wednesday also bucked the recent downbeat trend:
* Micron Technology Inc., the biggest U.S. maker of memory chips for PCs, posted a fiscal fourth-quarter profit well above expectations.
Citing higher PC demand and falling production costs, Micron said it earned $726.7 million, or $1.20 a share, in the quarter ended Aug. 31. That compared with a loss of $17.4 million, or a split-adjusted 3 cents, a year earlier.
The Boise, Idaho-based company was expected to earn 96 cents a share, the average estimate of analysts polled by First Call/Thomson Financial. Sales in the quarter more than doubled to $2.57 billion.
Micron is benefiting from greater demand for memory in PCs. It also is increasing sales of “flash” and other memory chips used in communications devices and consumer electronics.
Micron shares (MU) jumped $3.88 to $46.94 before the announcement. They have been beaten down from more than $90 a share in late August.
Because Micron’s fiscal fourth quarter ended in August, it’s conceivable that a deeper PC slowdown might just have begun in September, and thus wouldn’t have been reflected in Micron’s results.
But the company said that PC makers are telling it to prepare for a “typically robust” holiday season. Even so, Micron expects its sales growth rate to slow from the recent torrid pace, Vice President Mike Sadler said.
* Arrow Electronics, the world’s biggest distributor of electronic components and computer products, said its third-quarter earnings more than doubled as component sales soared.
Arrow, in an earnings preview, said it earned at least 97 cents a share in the quarter. Analysts had expected about 89 cents.
Sales of semiconductors overall remains very strong, Arrow said. “Demand is exceeding supply” in chips, said Chief Executive Francis Scricco.
But Arrow said its sales growth is fastest in areas such as chips for communications applications. Demand for PC microprocessors, by contrast, is down, the firm said.
Arrow shares (ARW) surged $4.13 to $36.69 on the NYSE.
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A Star No More?
Dell Computer was one of the hottest stocks of the late 1990s, but with Wednesday’s earnings warning the stock has fallen back to 1998 levels.
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Monthly closes and latest for Dell Computer (ticker: DELL) on Nasdaq
Wednesday after-hours quote: $25.00
Source: Bloomberg News
