THE WEEK AHEAD: Can Fed resolve tug of war?

The psychological tug-of-war that has kept the markets off balance for the last few weeks may finally be resolved Tuesday when the Federal Reserve Board meets to determine its next move on interest rates.

Each trickle of economic news over the past few weeks has left investors torn, as the angel of interest-rate cuts whispers "buy" in one ear, while the devil of economic doldrums intones "sell" in the other.

When the Labor Department released unemployment data May 4 that showed a dramatic increase in people filing for unemployment benefits in April, stocks initially slid. But the worse-than-expected numbers sparked a recovery when investors figured the data could help tilt the Federal Reserve towards its fifth rate cut this year.

If the Fed doesn't respond with a half-percentage point cut this Tuesday, the stock market could be in for a sharp drop.

"We need the Fed to continue to drip us Novocain," said UBS Warburg analyst Pip Coburn in a report. Coburn is expecting another 50-basis point cut at the meeting.

A steady stream of earnings reports will also keep investors busy piecing together the big picture for the technology sector next week.

• With the camps so strongly divided over the immediate prospects for semiconductor equipment stocks, Applied Materials' (Nasdaq: AMAT) quarterly report due out Tuesday could be a turning point for the sector.

On Thursday, Applied Materials received an upgrade from Morgan Stanley analyst Jay Deahna, who said the entire sector was finally headed into a real rally that could push chip-equipment stocks up as much as 40 percent in the next 12 to 18 months.

Analysts have been divided over whether these stocks are good investments at this point, though most agree that capital spending by chipmakers will bottom out in the next two quarters.

The company's second-quarter report is expected to show earnings of 33 cents a share and $1.99 billion in revenue, according to First Call's consensus. Analysts were expecting a profit of 49 cents a share on sales of $2.4 billion before the company lowered estimates earlier this quarter.

Banc of America Securities analyst Mark Fitzgerald said he expects the company to match his estimate of 28 cents a share on sales of $1.8 billion.

• BEA Systems (Nasdaq: BEAS) will also report its results Tuesday, and investors will be eager to see if the company can continue its trend of upward revisions despite the tough economic climate. They'll also be looking for any sign that competitor IBM (NYSE: IBM) is gaining market share as recent reports have suggested it's doing.

The maker of e-business software for financial, communications and utilities companies is widely viewed as one of the few bright spots in a down market, but its success has also been tied closely with that of partner Sun Microsystems (Nasdaq: SUNW).

A profit warning from Sun tripped up BEA's stock back in February, right after its fourth-quarter report. The warning, combined with the fact that BEA failed to meet whisper numbers, brought the stock down even though the company topped estimates.

This quarter, analysts are projecting earnings of 7 cents a share and sales of $259 million.

Chief Executive Officer Bill Coleman reiterated the projections it announced Feb. 22 after raising its internal projections for 2001. The company also said it would earn between 39 cents and 41 cents a share in fiscal 2002.

In its 16 quarters as a publicly traded company, BEA has raised guidance every quarter but one. "I'm going to keep that string going," Coleman said.

While analysts agree that the company should be able to meet analyst estimates, they aren't so optimistic about an increase in revenue guidance.

"We think there was plenty of cushion to make the numbers, but we don't think they will be able to increase guidance," wrote SG Cowen Securities analyst Rehan Syed in a research note.

"Recent investor concerns over competition (from IBM) and other fundamental issues are overblown," said Goldman Sachs analyst Anne Meisner in a recent report. But she predicted that management would only maintain its projections for the year.

• Investors aren't expecting much from Hewlett-Packard (NYSE: HWP) after it warned that its second-quarter earnings and revenue will fall short of estimates. The maker of computers and printers also said it would lay off up to 3,000 people in management positions as part of broader cost-cutting moves.

The company will report its numbers Wednesday. HP said it now expects to see earnings of between 13 cents and 17 cents per share for the second quarter, compared with the 44 cents per share it earned in the year-ago quarter. Analysts are expecting a profit of 16 cents a share on revenue of $11.78 billion.

UBS Warburg analyst Don Young "remains concerned with HP's deteriorating performance in (markets for) enterprise servers and PCs."

Several other analysts, who already lowered their earnings and revenue expectations to reflect the company's preannouncement, said they don't expect the company to provide much guidance for future quarters.

"While we are not revising any of our earnings estimates, we expect management to remain cautious regarding the near term," said Lehman Brothers analyst George Elling.

The only bright spot expected in the quarter could be the company's enterprise business, which Chief Executive Officer Carly Fiorina said has shown signs of improvement. Revenue for that division should be even with or slightly higher than in the first quarter.

• PC maker Dell Computer (Nasdaq: DELL) took some of the edge off its first-quarter report by announcing highly anticipated layoffs and reaffirming its projections last week.

Monday, the company said it will lay off 3,000 to 4,000 workers during the next two quarters. Management also said Dell will meet previous guidance of $8 billion in revenue and per-share earnings of 17 cents for its first quarter.

Analysts are predicting earnings of 17 cents a share on sales of $8.03 billion.

But investors will still be watching the report closely to see if the company is continuing its price war with Compaq Computer (NYSE: CPQ)-a development that's eroding gross profit margins and taking its toll on the company's bottom line.

UBS Warburg's Young predicts the company will "report a good quarter" and "match price cuts from Compaq."

Lehman Brothers analyst Dan Niles also forecasts a drop in the company's outlook. "Though we are bullish in the long term on Dell, we are more cautious in the near term based on estimates that will probably have to be lowered slightly driven by poor macro conditions plus an escalating price war and valuation that is fairly rich," the analyst wrote.

Other companies reporting quarterly results next week include Brocade Communications Systems (Nasdaq: BRCD), Sycamore Networks (Nasdaq: SCMR), Agilent Technologies (NYSE: A) and Ciena (Nasdaq: CIEN).

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