The Starting Line: Earnings season loses suspense

Due to a bevy of profit warnings, most investors already know that technology companies have had an ugly second quarter. Companies predicted a weak second quarter three months ago--after they reported shabby first-quarter results. And many companies--i2 Technologies and EMC to name a few--didn't go far enough and cut already trimmed profit targets again.

Through July 5, 379 tech companies pre-announced their results, and 77 percent of them were negative. In the first quarter, 462 companies pre-announced earnings, and 77 percent were negative.

As for future quarters, the long-term outlook isn't much better. No tech executive is able to predict when things will rebound. Analysts are expecting a quarter with few surprises--there's an earnings drought going on, and it's going to continue. Analysts are also hoping that tech companies will indicate that business has stabilized somewhat.

Simply put, earnings season has become a holiday with all the presents unwrapped already. There are few surprises. Why bother with earnings season at all?

Analysts said the financial free-for-all is necessary as a barometer of where companies stand even though most of the suspense is gone. These analysts also maintain that investors who have been paying attention shouldn't be surprised by the magnitude of the gloomy earnings. "The quarter is already history," said William Blair Internet analyst Abhi Gami. "If companies miss the numbers, who cares at this point?"

Other analysts agreed and noted that quarter-by-quarter benchmarks are losing their luster, especially when most tech results are much lower compared with a year ago.

But analysts aren't going to give up on earnings season. Why? They're looking for nuggets of information that'll be used to fill in the blanks to make predictions. Earnings season has become a big financial Easter egg hunt.

Because of Regulation Fair Disclosure, a Securities and Exchange Commission rule that requires companies to dish out information in an equitable manner, companies only talk about their businesses and outlooks on quarterly conference calls. "It may be the only time you get to hear any perspective about the business," Gami said.

Gami, like other analysts, will be listening to minor details that could become major issues for investors. Notably, he's hoping some executives will indicate that they are finished with cost cutting. "That means management is expecting flat to up revenue," said Gami, who added that executives may not want to go on a limb with a revenue prediction but will back into an outlook.

Brendan Barnicle, a software analyst at Pacific Crest Securities, said this quarter will require investors to ferret out information that will enable them to "connect the dots." Among the companies Barnicle covers, only i2 Technologies has issued a profit warning. However, Wall Street will be busy trying to extrapolate whether i2's problems are ready to spread to other software makers.

Getting a read on a sector has become "a lot more challenging," Barnicle said. Indeed, it may get worse.

Barnicle noted that many companies may cut their estimates for future quarters only because it'll make future financial targets easier to clear. "It's a great time to lower the bar," he said. "Even if your business looks great, no one is going to believe you."

Analysts also said there'll be a lot of discussions about business in Europe and Japan. For David Bailey, a PC analyst at Gerard Klauer, hints about the economies in Europe and Japan will go a long way to predicting a rebound.

"Any indication about international will be a big point," he said. "We need further evidence about Europe and Japan. Everyone is saying something different."