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More positive earnings reports expected from leaders

Technology's old guard are expected to report strong profits for the first quarter on the strength of continuing demand for computers, cell phones and servers.

Companies that make up the technology industry's old guard are expected to report fairly strong profits for the first quarter on the strength of continuing demand for computers, cell phones and servers.

Intel and Apple Computer will likely become the next two traditional PC companies to report a double-digit growth in profits for the first quarter. Intel is expected to report earnings of 69 cents per share for the first quarter, a 21 percent increase over earnings of 57 cents the year before, according to a consensus of analysts polled by First Call. The chipmaker will release its earnings after the market closes this afternoon.

Apple on Wednesday is expected to report earnings of 81 cents per share for its second fiscal quarter, a 35 percent increase over earnings of 60 cents per share for the same quarter the year before.

Optimism isn't universal, of course. IBM, which will report its earnings later today, is expected to post flat earnings of 78 cents a share.

Despite massive erosion of stock prices on Wall Street, 2000 has started off as another good year for several hardware manufacturers. Many of these companies have enjoyed a rebound on the market since Friday.

Texas Instruments, Sun Microsystems and Advanced Micro Devices all exceeded profit expectations for the first quarter, with AMD reporting earnings of $1.15 a share for the quarter, more than double the estimate.

TI saw net income grow 69 percent in the first period, an increase fueled largely by sales of digital signal processors, one of the chief elements inside cell phones. Sun saw net income grow by 49 percent to hit $439 million.

In addition, PC manufacturer Gateway hit its earnings mark of 41 cents per share. That represented an increase in profits of 32 percent from the same period the year before.

Like the above companies, Intel is expected to benefit from stronger-than-expected demand for electronic goods in the first quarter. Sales of PCs and servers buoyed demand for Intel microprocessors, according to analysts, while sales of flash memory, which is used in cell phones, continued to increase.

"The first quarter has been really good," said Linley Gwennap, principal at the Linley Group, a Silicon Valley consulting firm. "The one thing that hurt Intel was not being able to deliver enough (Pentium III) processors at the high end."

Nonetheless, because these chips typically don't constitute the volume of sales, the effect will be minimized.

Not all of the gains in the first quarter will come through increased demand. As with the last quarter, some of Intel's profits will come through cost-cutting and lower chip-packaging costs. Some analysts, such as Ashok Kumar at Piper Jaffray, have predicted that cost reductions will stay ahead of price declines for the year.

Intel is also likely to attribute some of its first-quarter profits to gains from equity investments, increasingly common among high-tech companies. AMD, for instance, saw income from interest and other outside factors nearly double over the same period last year.

Like TI, AMD and others, Intel has seen its stock rebound since Friday's debacle. Yesterday the stock closed at $123, approximately 11 percent above the closing price from last week.

For Apple, a consensus of analysts polled by First Call predicted profits of 81 cents a share, up 35 percent from the 60 cents a share posted a year earlier. The second quarter, generally Apple's weakest, follows strong first-quarter results of $1 per share, minus extraordinary events, 11 cents above analyst estimates.

Sales of iMacs and iBooks are expected to be strong. Both consumer categories are expected to benefit from recent product refreshes, such as the iMac DV and iBook SE. Powerbook sales also could pick up because of new models introduced during the quarter.

Despite continued success, some are skeptical that Apple will be able to continue on its recent trajectory.

"I am not expecting blowout unit volumes from Apple primarily because they're selling into their installed base," said Gartner Group analyst Kevin Knox. "It's always difficult to continue to have double-digit growth when you sell into your install base."

By contrast, lingering Year 2000 sales sluggishness will take a toll on IBM, which is expected to report flat growth for the first quarter over a year earlier and to be down nearly 45 cents from $1.12 a share in the fourth quarter.

Although earnings estimates range as high as 85 cents a share, a consensus of analysts polled by First Call predicted profits of 78 cents a share, on par with the first quarter of 1999, when IBM had $20.3 billion in revenue.

While services and software sales are expected to be fairly strong, weak hardware sales, particularly among high-end servers and mainframes, are expected to drag down revenues.

IBM first revealed slower server sales during the third quarter of 1999 and predicted flat revenues for the first quarter.

Armonk, N.Y.-based IBM also faces trouble in its PC business, which had a disastrous fourth quarter. U.S. PC sales declined 29 percent here and 26 percent worldwide, according to International Data Corp. Continued weakness during the first quarter is expected to show.

"IBM is going to be hit across the board because of Y2K, partly because their PC business is pretty heavily related to their enterprise business," said Gartner Group analyst Tom Bittman. "They sell PCs best into IBM accounts, not across the board like some other companies. Other companies will generally be less impacted, but IBM will be more impacted by Y2K."