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Earnings season may stabilize jittery markets

The Nasdaq takes a beating as investors turn pessimistic about many tech companies, but there is some reason for optimism that the next few weeks may be less treacherous.

The Nasdaq took a beating today as investors turned pessimistic about many tech companies, but there is some reason for optimism that the next few weeks may be less treacherous.

The Nasdaq composite index lost 258.25 to close at 4,188.20, while the Dow Jones industrial average gained 75.08 to end at 11,186.56. Some analysts said the Nasdaq decline could be short-lived, or that it could even produce a buying opportunity because of the start of earnings reporting season.

"You have a lot of positive news coming this week as we begin the reporting season," said Francis Gannon, who oversees $1.8 billion at SunAmerica Asset Management. "First-quarter earnings are really going to stabilize the market."

Motorola's announcement this afternoon will lead this week's batch of earnings reports from tech companies. Other companies scheduled to report this week include Advanced Micro Devices, Rambus, Seagate Technology, Ameritrade, Gateway and Sun Microsystems.

"By virtue of the fact that we had almost a silent pre-announcement season, there's potential for some upside this coming earnings season," said Bryan Piskorowski, a market strategist at Prudential.

"The Nasdaq has pulled back from its highs, so there's some room for it to move (up)," he said. He added that $1.6 trillion sitting in money funds could easily be thrown into the market and cause a substantial upturn.

According to a poll of analysts by First Call, Motorola is expected to earn 58 cents a share. "I expect continued strength in their semiconductor business and strong demand for wireless around the globe," said Bob Wilkes, a telecommunications analyst at Brown Brothers Harriman.

Added Dale Pfau, an analyst at CIBC World Markets: "We expect the wireless sector to be very strong. In fact, Motorola is one of our weakest stocks...and we expect them to do slightly better than consensus expectations."

However, some analysts think that investors should look for Easter eggs in the report, such as material shortages, and how they might affect the bottom line.

Earnings season
Per-share earnings estimates for 10 high-profile technology companies that are scheduled to report this week.
Company Ticker symbol Earnings (loss)
Motorola MOT 58 cents
Advanced Micro Devices AMD 52 cents
Rambus RMBS 14 cents
Redback Networks RBAK 3 cents
Seagate Technology SEG 15 cents
Ameritrade AMTD (4 cents)
Gateway GTW 41 cents
KLA-Tencor KLAC 32 cents
PMC-Sierra PMCS 16 cents
Sun Microsystems SUNW 23 cents
Source: First Call
For example, "a lot of companies are switching to just-in-time manufacturing," Wilkes said. "What happens to just-in-time manufacturing when you're one or two parts short? Nothing good."

Tellabs issued a profit warning last week partially as a result of a shortage of a specific capacitor. Similar problems could eat into other companies' bottom lines.

"Demand continues to outstrip supply of components," said Ashok Kumar, of U.S. Bancorp Piper Jaffray, "But supply should catch up in the back end of this year."

Kumar noted that the computer industry is in a cyclical upturn as sales of chips continue to increase, which leads to shortages as producers scramble to keep up. He remains confident that the shortages will not derail the earnings of major companies such as Dell Computer, however.

"Major (equipment manufacturers) won't be affected by shortages as far as availability (of products), but maybe price," he said. "However, tier two or tier three makers might get affected in price and availability."

Kumar expects Intel and AMD to post a strong quarter but sees a "mixed bag" for Dell and Gateway. Dell already issued an earnings warning, and Kumar believes the companies will post somewhat lower-than-expected revenues and earnings within analysts' estimates.

Whether the earnings reports are good or bad, the markets are still vulnerable to volatility, warned Ed Snyder, a Motorola analyst for Chase H&Q. "People are buying stocks on margin and playing the options market more, and whenever you have that you have increased volatility.

"You also have more of a retail investor presence in the market than there was even two years ago," he added. "There's a lot more speculation than long-term investing."

Bloomberg News contributed to this report.