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Consumers thrive as B2B trembles

While the overall tech sector moans of reduced earnings, some of the biggest names in movies, travel, games and individual auctions keep raising their expectations.

4 min read
Maybe it's a consumer year for technology.

While the overall tech sector moans of reduced earnings and low-to-no growth forecasts for the foreseeable future, some of the biggest names in areas such as movies, travel, games and individual auctions keep raising their expectations. Their stock prices reflect their high hopes.

Even as the tech-saturated Nasdaq composite index has shed a fifth of its value since the year began, shares of auction king eBay have nearly doubled in value. Travel Web site Expedia has more than quadrupled. Game software publisher Electronic Arts and computer animation specialist Pixar Animation Studios have seen their market capitalizations rise by more than a third. Nvidia, the fastest-growing maker of 3D graphics chipsets, has risen more than 150 percent.

Granted, not all consumer-tech or Internet companies are thriving. Ad-dependent companies like Yahoo are hurting. Doubts persist about Amazon.com's ability to become consistently profitable. Earnings forecasts for consumer-heavy PC makers such as Gateway and Apple Computer have fallen.

Yet according to earnings tracking firm First Call, the consensus analyst estimate for eBay now sits at 45 cents per share, up 12.5 percent from 40 cents two weeks ago. Ten of 13 analysts covering Electronic Arts raised their estimates after the company's quarterly report last month. Nvidia, in defiance of a chip market whose outlook has been called dismal by market research firm Dataquest, will increase profits 39 percent this year, if analysts are correct.

The latest boost comes from Pixar, which Thursday reported better-than-expected quarterly results, and therefore raised 2001 earnings expectations to the range of 50 cents to 58 cents per share, from 40 cents to 55 cents previously. And 3D animation from other companies is thriving this year.

Consumer techs thrive
Shares of tech companies in leisure, entertainment and other consumer fields have done well this year compared with the rest of the technology sector.
Company (ticker) Change, year to date
eBay (EBAY) +90.4%
Electronic Arts (ERTS) +36.2%
Expedia (EXPE) +332.1%
Pixar (PIXR) +34.3%
Nvidia (NVDA) +158.6%
Nasdaq -20.5%
Source: CNET Investor research

Pixar Chief Executive Steve Jobs believes his company's ability to ignore a slow economy rests at least partly on price. Pixar operates in an industry that can resist the economic slowdown because movies cost only $10 in theaters and $20 on video, Jobs said.

"In this challenging economic downturn...these are not major purchase decisions," Jobs told analysts. "While this year will be one of the worst for many industries, it will likely be the best year in history for our industry. We are in a great business to be in every year--but especially this year."

Jobs' point extends to other tech products or services for individuals.

Office productivity suites can cost hundreds of dollars, but a new game usually costs less than $90. Online travel agencies have seized market share from their offline brethren because airlines, reeling in the wake of a precipitous fall in business travel, have tried to juice consumer travel with cheaper fares. And eBay always has been a magnet for people looking for deals on just about anything.

Consumer cycles

Meta Group says that amid the dot-com carnage, a few business-to-consumer and business-to-business Web sites have been steadily growing. Auto industry exchange Covisint, for example, recently reported that its auction site had handled transactions totaling $33 billion in the first half of 2001.

see commentary

UBS Warburg's global technology strategist, Pip Coburn, doesn't see any broad theme to the success of consumer technology. He believes this year has simply seen some consumer cycles start to rise even as the business-to-business portions of the economy suffer. "It just happens to be coming at this point," Coburn said.

So the gaming industry's rebound was expected because of scheduled introductions for new console technology, including PlayStation 2 from Sony and the upcoming Xbox and GameCube, from Microsoft and Nintendo, respectively.

Pixar, whose stock historically has risen in anticipation of its next feature film, is scheduled to release "Monsters Inc." this fall.

But it's not entirely cyclical. Few people would have predicted that online travel would be successful while airlines were struggling. And eBay's success has continued in spite of the general collapse of the dot-com industry.

Keep in mind that so far consumer spending, technology or otherwise, has resisted the economy's slowdown, at least compared with corporate expenditures.

According to the U.S. government's Bureau of Economic Analysis, personal consumption expenditures increased and residential investment increased in each of the first two quarters of this year, while nonresidential fixed investment plunged, especially in the second quarter.

Part of the reason why leading consumer tech companies look promising this year might be precisely because they are leading.

eBay looks even better than before because other auction sites have fallen into detritus. Electronics Arts years ago emerged as the giant of its niche as the game software industry largely consolidated around a few players.

And Jobs was quick to point out that, with the exception of Dreamworks SKG and Walt Disney, other digital animation efforts announced around the same time of Pixar's initial surge have faded.

"Most of the ideas out there aren't working, but those never see the light of day," Coburn said. "We (the market) have picked the winners."