THE WEEK AHEAD: Earnings reports, Fed meeting on deck

4 min read

Technology companies will stage their own version of Super Tuesday this week as leaders in three disparate sectors will report their quarterly results. That same day, the Federal Reserve's Open Market committee will meet to discuss interest rates.

For the week the Dow Jones industrial average lost 118 points to close at 10,913.32 while the Nasdaq managed to gain 24 points to close at 2,527.87. Most of the decline came Friday after the Labor Department reported the Consumer Price Index rose 0.7 percent in April after rising only 0.2 percent in March.

Most analysts concede that higher consumer prices point toward rising inflation and, eventually, higher interest rates. But the market's not too sure what to make of this latest batch of economic data.

On Thursday, the market learned that core rate of April's Producer Price Index jumped only 0.1 percent, a sign that inflation may be in check.

The mixed signals were enough to convince most investors to sell now and watch for sign later.

"The bond ghouls now have a number they can hang onto,'' said Phil Orlando, chief investment officer at Value Line's Asset Management, in reference to the falling 30-year bond and rising yield which came within a few hundredths of the benchmark 6 percent level.

Tuesday's FOMC meeting will be pivotal to how stocks perform not only this week, but into the summer. Any sign of a tightening bias could result in a dramatic downslide in U.S. markets.

Friday's lousy performance quickly erased any joy investors might have felt from IBM Corp.'s (NYSE: IBM) incredible 20-point gain Thursday. IBM, which is portraying itself as the full-service Internet stock play, closed off 6 1/4 to 239 3/4 Friday.

All these heady issues could be rendered moot if some bellwether technology stocks blow away analysts' estimates in their latest quarters.

On Tuesday, Dell Computer Corp. (Nasdaq: DELL), Lycos Inc. (Nasdaq: LCOS) and Applied Materials Inc. (Nasdaq: AMAT) will all announce their latest results. Each company is clearly identified as a leader in its respective sector. All three companies are facing different stages in their ferris-wheel-like industries.

Dell Computer Corp., which took some abuse earlier this quarter, hopes to match the success enjoyed by Gateway Inc. (Nasdaq: GTW) and Apple Computer Inc. (Nasdaq: AAPL).

Despite concerns that falling average selling prices would erode profit margins in the PC industry, Dell's competitors have managed to not only meet but beat estimates in their latest quarters.

Dell's prospects are bit a foggier.

First Call consensus expects it to earn 16 cents a share in its first quarter, up from the 11 cents a share it earned in the year-ago quarter.

But, like so many other tech stocks, investors will be paying closer attention to its top line.

Last quarter, Dell recorded sales of $5.17 billion on its way to a profit of $425 million, or 31 cents a share. In the year-ago quarter, it made $305 million on $3.92 billion. Anything less than a 20 percent improvement year-over-year would be poorly received.

Not that Dell shares have exactly been lighting up Wall Street of late.

The stock moved to a high of 55 in February after falling to a low of 19 5/16 in June. On Friday, the stock closed off 2 1/16 to 41 3/16.

Twenty-five of the 35 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

Lycos Inc.'s story is a bit different. The portal recently called off its $18 billion merger with USA Networks (Nasdaq: USAI) and Ticketmaster-Citysearch Online Inc. (Nasdaq: TMCS).

That makes Lycos a much more attractive investment at this point because other suitors will soon be trying to sweep CEO Bob Davis off his feet.

On the earnings front, Lycos is still expected to finish its third quarter in the red. First Call consensus is predicting a loss of 3 cents a share in the quarter.

"This report is very important," said Andrea Williams, an analyst with Volpe Brown Whelan. "The results are a lot more important than what they would have been if the USA deal was still in tact."

In the year-ago period, it dropped 8 cents a share on sales of $15.1 million. By comparison, Lycos lost $9.2 million, or 22 cents a share, on sales of $30.5 million in its second quarter.

Again, it's all about the revenue. And the traffic.

Lycos shares peaked at 145 3/8 in the heat of the acquisition bidding war after trading at just 20 1/16 in August.

Twelve of the 17 analysts following Lycos call it a "buy" or "strong buy."

Finally, there's Applied Materials Inc. (Nasdaq: AMAT), the world's largest semiconductor-equipment manufacturer.

It looks like the tide has finally turned in Applied's favor. A strong orders report last month implies that it might top the Street estimate of 27 cents a share in its second quarter.

Last quarter, Applied easily beat analysts' estimates, earning $52.8 million, or 14 cents a share, on sales of $724 million.

It also helps that Japanese and Korean chipmakers are ramping up production after more than a year of economic malaise. Applied's new product lines are receiving rave reviews from chipmakers and the industry as a whole seems to be improving.

Likewise, Applied's stock is on the move.

After falling to a low of 21 9/16 in October, Applied shares moved to a high of 71 5/8 in February. Its shares closed up 1 21/32 to 60 11/16 Friday.

In the year-ago quarter, AMAT earned $141 million, or 37 cents a share, on sales of $1.17 billion.

Twenty-four of the 27 analysts following the stock maintain either a "buy" or "strong buy" recommendation.