October 8, 2010 / 8:44 PM / 7 years ago

Tech vendors show signs of better year-end

SAN FRANCISCO (Reuters) - Big technology vendors could show signs of better growth for the rest of 2010, but consumers jaded by the economic slump will be careful about what they spend on and likely favor mobile devices.

Pinched by slower-than-expected demand for computers as the U.S. economy continues to drag, microchip makers Intel Corp and Advanced Micro Devices Inc have cut their sales outlooks ahead of quarterly earnings reports next week.

As tech earnings season kicks off next week, many investors believe the bad news is out of the way and sales should rise in the final months as consumers warily spend on holiday shopping -- with an out-sized amount going to smartphones and tablets such as Apple Inc’s iPad.

“Budgets are tighter now. People have less money to spend so they’re going to spend it more carefully, where they think they get the best bang for the buck. And for a lot of them it’s portable electronics,” said Kaufman Bros analyst Shaw Wu.

Companies with less exposure to the booming wireless device market might not fare so well. According to StarMine SmartEstimates, which accords more weight to timelier forecasts by the most accurate analysts, Intel -- which already took more than $1 billion out of its third-quarter revenue guidance -- is expected to miss the average estimate by about 0.4 percent.

“A lot depends on what happens in the economy, but some segments are pretty good,” Micron Technology Inc President Mark Durcan told Reuters in an interview on Thursday. “At least for Micron, we have very strong demand in the smartphone space and pretty good demand in enterprise and networking.”

There are signs the U.S. consumer is shopping again. Retailers are expected to see their best Christmas in four years, although unemployment remains high and consumers will likely demand deep discounts.

The market for tablets -- touchscreen devices larger than a smartphone and smaller than a laptop -- has exploded since Apple launched its iPad in April. Samsung Electronics Co Ltd and Dell Inc alone have launched competing devices in the past two months, and dozens more are in the pipeline. The question is who will get to store shelves in time.

Hewlett-Packard Co and Research in Motion Ltd appear to be waiting until next year to launch tablets to consumers rather than rush them out the door this Christmas.

Microsoft Corp may be the big winner, with its new Windows Phone 7 software on handsets in stores by November -- its last chance, some analysts say, to catch up with Apple and Google Inc’s Android smartphones after squandering its strong market position in just a few years.

Despite a recent stock rally, technology heavyweights IBM Corp, HP, Cisco, Oracle Corp, Microsoft, Dell and Intel are undervalued from the point of view of intrinsic value, according to Thomson Reuters StarMine.

Apple and Google are comparatively overvalued.

For price and performance comparisons of the biggest tech companies, please click: link.reuters.com/vyk67p

RESPECTABLE

Technology stocks surged during September with the Nasdaq up 12 percent in the month. Investors are looking for signs of strength in the current October-December period to back their bets -- or sell.

“I don’t think it will be as strong as it has been historically, but it will still be respectable,” said Barry Mills, a portfolio manager at Dreyfus Technology Growth Fund.

Also helping tech spending, emerging markets such as China, Brazil and India are becoming increasingly large consumers of computers, smartphones and Internet services and their economies are growing much faster than the United States.

The National Retail Federation forecasts a 2.3 percent increase in U.S. sales in November and December, which would be the best performance since 2006.

In September, spending on consumer electronics rose 4.7 percent year-on-year as people dished out less on high-end clothes and snazzy restaurants, according to MasterCard Advisors’ SpendingPulse, which estimates total U.S. retail sales.

“Large-cap technology is really cheap and has arguably the best balance sheet that technology has seen in a generation, in terms of cash,” said Mills.

Wu recommends buying Apple and Research in Motion for exposure to mobile devices, as well as Cisco Systems Inc, which over time should benefit from increased demand for bandwidth as more people use social networking services and listen to music over their phones and tablets.

But sales of traditional computers to consumers will likely be slower through the rest of 2010, mostly because of the still sluggish economy, but also because of the growing preference for pocket- and handbag-sized devices -- bad news for Dell.

“You’re seeing a challenging consumer market out there, which is why you’re starting to see Dell, HP and Acer Inc really come out and start discounting their machines,” said Patrick Wang, an semiconductor analyst at Wedbush.

Reporting by Noel Randewich; editing by Andre Grenon

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