Another Tech Sector Downer

Hopes for a technology rebound dimmed further Thursday with lackluster sales forecasts from Sun Microsystems Inc. and Novellus Systems Inc.

In addition, UBS Warburg cut its 2002 and 2003 projections for the global semiconductor and chip-equipment industries, saying sluggish demand for personal computers and telecommunications equipment could drive down revenue.

UBS expects 2002 chip revenue to fall as much as 2% or rise as much as 2%.

It previously predicted sales would be unchanged or grow as much as 5%. It changed its forecast for chip-equipment revenue to a drop of 20% to 25% from a decline of 15% to 20%.

“The whole concept of a second-half recovery is pretty much dead,” said Brett Berry, who helps manage $1.2 billion at Bailard, Biehl & Kaiser Inc. “In the short run, it’s not pretty at all.”

Santa Clara, Calif.-based Sun, which makes servers that run corporate networks and Web sites, said first-quarter sales would be little changed from $2.86 billion a year ago, at the low end of forecasts made last month.

“We’ve not seen any improvement” in information technology spending, Chief Financial Officer Steve McGowan said in a conference call to investors. “Some would say it actually may be worsening.”

Last month, Sun predicted sales would fall 10% to 15% from the previous quarter, when it took in $3.4 billion. McGowan said Thursday that the drop would be near the 15% mark.

Slumping economies worldwide caused Sun’s sales to fall 32% in its fiscal year that ended in July as businesses curbed computer purchases.

Server sales didn’t pick up in August, analysts said, quashing optimism that demand might rebound this year.

Sun shares fell 13 cents to $3.83 in regular Nasdaq trading, then fell to $3.75 after hours, following the announcement.

This week, Hewlett-Packard Co. reported a quarterly loss and a sales decline of 22% in its enterprise systems unit, which makes server computers and storage devices that compete with Sun’s.

HP Chief Executive Carly Fiorina said customers were waiting longer before upgrading equipment, and President Michael Capellas said a drop in sales of high-end servers helped cause the loss.

The server market is becoming increasingly competitive as manufacturers vie for fewer sales amid shrinking demand, investors said.

Novellus Systems, whose equipment builds circuits in semiconductors, said Thursday that its third-quarter earnings, sales and orders will be lower than previously forecast because two customers in Asia delayed purchases.

Novellus will break even in the third quarter on sales of $230 million, compared with an earlier forecast of a profit of 2 cents a share on sales of $250 million, Chief Executive Richard Hill said.

Makers of chip equipment such as San Jose-based Novellus are struggling to pull out of a slump that began two years ago, when chip makers started spending less on new factories because of declining demand for personal computers and electronics.

“The outlook is very, very murky,” Hill said. “Our customers have seen a slowdown in demand from their customers. As a result, they’re not bringing on excess capacity.”

Novellus shares rose 11 cents to $24.29 in regular Nasdaq trading, then eased to $24 after hours.

This year, investors said they thought demand for chip-making equipment was starting to recover. In May, Novellus raised its second-quarter profit forecast, citing improved consumer demand for electronics. Now chip makers are buying less equipment as that demand slips, Hill said.

“There’s not a lot of growth in electronics-related markets right now,” said Lehman Bros. analyst Edward White, who rates Novellus “equal weight” and doesn’t own the shares.

This week, Intel Corp.’s chief executive, Craig Barrett, warned that demand for personal computers may not rebound this holiday shopping season.

Bloomberg News and Reuters were used in compiling this report.