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Tech Industry

THE DAY AHEAD: Just give us visibility

COMMENTARY -- Wall Street doesn't want too much from companies--just a little visibility. Earnings visibility, revenue visibility and the crystal ball variety of visibility when it comes to the economy.

In other words, Wall Street wants a fairy tale. Investors want all-knowing CEOs that'll be able to predict how their company will perform day-to-day, month-to-month and quarter-to-quarter.

Here's what we want to hear on earnings conference calls in a jittery market:

    Analyst: Do you think you'll see an uptick in the second half of the year?

    Tech CEO: Yeah, I think the fourth quarter was hit by a December slowdown. The first quarter will be difficult, but the second quarter will show moderate improvement on April 21, give or take a few days. In the second half, we expect demand to be robust, with a big pop starting on July 30 at about 2:15 p.m. EST.

    Analyst: What gives you confidence this rebound will occur?

    Tech CEO: We're using a combination of proprietary analysis and customer surveys. We've also called the psychic hotline a few times.

    Analyst: Thanks. It's comforting to see a company have such visibility into its business.

Some investors would probably buy based on that fictional account. Deep down, we know executives have no clue what the economy is going to do. Wall Street doesn't want to hear it though. We want a second-half rebound so we can feel good about ourselves now. Business better improve on July 1.

On Tuesday, Applied Materials CEO James Morgan, known by all as a straight shooter, said the conventional wisdom about an economic rebound is a bunch of bunk. The first view is that the economy will rebound in the second half. The second is that the downturn will last all year. "We don't subscribe to either," said Morgan. "No one can predict the future accurately."

Thank you Mr. Morgan, thank you.

Morgan is saying only what should be blatantly obvious by now. No one knows what the economy is going to do. We're in a slowdown and Federal Reserve interest rate cuts may help matters, but consumer confidence is still down. Second-half rebound? Who knows? Prolonged economy pain? Ditto.

That doesn't mean Wall Street likes the uncertainty. Analysts took great pains to note that Applied Materials' "visibility remains close to none."

And Applied Materials (Nasdaq: AMAT) isn't the only company with a foggy view. Internet companies such as Terra Lycos (Nasdaq: TRLY) didn't even venture a guess for its fiscal 2001 targets. Would you? You're only going to have to lower your targets again. Dozens of companies have given a first-quarter outlook, but were mum on more guidance.

Given the current state of affairs, "visibility" has become the most popular word in brokerage reports. In the realm of cliches, "visibility" has become almost as popular as "solutions."

CS First Boston analyst Charles Glavin is just the latest analyst doing his part to advance the visibility brigade.

Earlier this week, Glavin cut communications chip maker Broadcom from a "buy" to a "hold," based on--you guessed it--"impaired visibility."

Broadcom execs recently admitted that the company could see a slowdown as demand fluctuates and its major networking and cable customers wrestle with excess chip inventory. "We believe further downside to 2001 estimates may still exist," said Glavin.

Glavin followed up with downgrades of Intel (Nasdaq: INTC) and Texas Instruments (NYSE: TXN). For Intel, "visibility steadily worsens," said Glavin, who added that a "substantial recovery for 2001 is unlikely."

So what can an investor possibly do amid all this impaired visibility? Find out how companies performed in the last tech downturn--it varies by industry. Then you buy shares of companies that can manage in a downturn and grab market share.TDAIN


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