THE DAY AHEAD: Tech comes clean

Larry Dignan
3 min read

Let's just get all the bad news over with already.

It's time to start a movement. Investors all over the United States should push for each sector in technology to have rotating bad news days.

Just look at how great it could be. On Monday, Cypress Semi (NYSE: CY), Vitesse Semi (Nasdaq: VTSS), TriQuint Semi (Nasdaq: TQNT), LSI Logic (NYSE: LSI) and Xilinx (Nasdaq: XLNX) all issued profit warnings. And they all sounded the same end-customer demand, inventory gluts, yada yada yada.

But a funny thing happened on the way to toning down expectations--the stocks went up. Investors are simply tapped out over the non-stop bad news.

We could be on to something here.

If Monday--obviously the day for semiconductor companies to warn--went so well maybe we should set up a schedule for next week. Tech companies weren't on schedule this week; CEOs obviously didn't get the memo that the chip guys were circulating.

JDS Uniphase (Nasdaq: JDSU) issued its second profit warning in a month. Broadcom (Nasdaq: BRCM) didn't get the chip memo and delivered a profit warning late Tuesday night.

Here's a modest proposal to allow all our tech constituents to come clean for next week. We gave the investor-relations departments a few days advance notice, so they can coordinate their efforts.

 Monday, March 12: Dot-com day. Salomon Smith Barney analyst Lanny Baker summed it up best in a recent research note. Baker expects Yahoo (Nasdaq: YHOO), DoubleClick (Nasdaq: DCLK) and others to play the "make the quarter, lower the guidance" game. The gist is that dot-coms are going to cut their outlooks for the second quarter. No big surprise here, but it's hard to find the proper valuation if estimates keep falling. Take your lumps now and we'll move on.

 Tuesday, March 13: Formerly bulletproof-software-company day. With Oracle (Nasdaq: ORCL) blowing the fun for all those highfliers--Siebel (Nasdaq: SEBL), BEA Systems (Nasdaq: BEAS) and so on--you might as well talk down estimates now. What's the worst that can happen? Goldman Sachs and the rest of Wall Street decide to downgrade the whole software sector again? Besides, Oracle reports earnings March 15 and investors may be expecting the worst.

 Wednesday, March 14: Information technology giant day. This confessional day should be relatively easy. IBM (NYSE: IBM) is just about the only company that hasn't warned yet. If IBM doesn't warn, consider it an off day.

 Thursday, March 15: Internet services day. If Sapient (Nasdaq: SAPE), arguably the strongest of the Net services firms, already warned, what's taking the rest of the bunch so long? No investor will be terribly shocked if iXL (Nasdaq: IIXL) and a bunch of others warn, so just do it.

 Friday, March 16: Rest and be happy that the Nasdaq gained all because these tech companies came clean, analysts reset estimates, and suddenly everything is looking like a value stock.

Will any company heed this advice about creating theme days for profit warnings? Probably not, but looking at those chip stocks on Monday and Tuesday you have to at least consider it.

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