THE WEEK AHEAD: Judgment day for tech titans

4 min read

How the mighty have fallen.

With tails firmly tucked between their legs, three of the biggest names in the technology universe will report their disappointing quarterly results next week. As if this market needed more bad news, Hewlett-Packard, Dell and Applied Materials will all come clean.

These aren't the fly-by-night dot-bombs that investors have come to expect bad news from. These are the pillars of the industry.

"Clearly we have a situation where there's a macroeconomic slowdown worldwide in every industry," said Shekhar Pramanick, an analyst at Prudential Securities. "Business has slowed precipitously everywhere and there's no way the tech sector could avoid it. Not even the leaders."

Dell (Nasdaq: DELL), Hewlett-Packard (NYSE: HWP) and Applied Materials (Nasdaq: AMAT) all used to be the stocks people ran to, the so-called flight to quality, when the going got tough.

With all three stocks trading well below their 52-week highs, it appears investors are even fleeing these quality stocks in favor of cash.

"A stock like Applied Materials is the kind you want to buy when everything looks bad," Pramanick said. "It's an absolute leader. When these interest-rate cuts take hold and the economy improves, it will be ready for the recovery probably in the fourth quarter and into fiscal 2002."

  • Applied Materials is expected to post a profit of 63 cents a share on sales of between $2.6 billion and $2.7 billion in its first quarter.

    Earlier this quarter, the chip-equipment maker warned that its sales would fall 7 percent to 10 percent below the $2.9 billion to $2.95 billion target it previously forecast.

    Analysts originally expected Applied to earn 74 cents a share in the quarter.

    "Demand for semiconductors began to slow late in the fourth quarter of 2000," CEO James Morgan said told analysts back in January. "Inventory buildups in telecommunication products, slower than expected PC sales and slower global economic growth are now causing customers to reevaluate their capital spending plans."

    Since the beginning of January, he added, "a number of our customers have been revising the timing of their capital spending and rescheduling or canceling existing backlog, resulting in the postponement in delivery of equipment."

    Last quarter, Applied Materials beat the Street when it posted a profit of $664 million, or 77 cents a share, on sales of $2.92 billion.

    The stock closed up 25 cents to $42.63 Friday, well off its 52-week high of $115 established in April.

  • Dell should be even more interesting to track next week ahead of its fourth-quarter earnings report.

    The PC maker, which dismissed a Wall Street Journal report that it will lay off more than 4,000 employees, is now expected to earn 19 cents a share after issuing two profit warnings earlier this quarter.

    Company executives in January said the "deterioration in global economic conditions and overall demand for computer systems and services hurt results" in the quarter.

    The company also lowered estimates following its third-quarter report when it posted a profit of $674 million, or 25 cents a share, on sales of $8.26 billion.

    In its latest warning, Dell said fourth-quarter sales are expected to total $8.5 billion to $8.6 billion, up 25 to 27 percent from the year-ago quarter, with net income up 16 percent to 20 percent.

    The company previously projected earnings of 26 cents per share, on sales of $8.7 billion.

    Unit shipments are expected to be up 40 percent for the quarter.

    The stock closed off $2.63 to $23.50 Friday, a far cry from its peak of $59.69 back in March.

  • Hewlett-Packard also lowered its first-quarter sales and earnings estimates.

    Back in January, it warned investors that it will likely earn between 35 cents and 40 cents a share in the quarter, below the original estimate of 42 cents a share.

    At the time, Chief Executive Officer Carly Fiorina said the economy slowed dramatically from the last time the company projected growth in the mid-teens. Fiorina said HP had expected a "soft landing" in the economy, but added that there was a "significant change in market conditions in recent weeks."

    The writing may have been on the wall before then, however, considering HP back in December sent a memo to employees, asking managers to delay salary increases, cut back on using temporary workers and encourage employees to take vacation time.

    HP said it was being conservative with its revised guidance and said it was staying focused on its earnings targets by cutting costs. The company projected gross profit margins of 27.5 percent to 28.5 percent.

    Last quarter, HP missed analysts' estimates when it earned 41 cents a share on sales of $13.3 billion.

    HP shares closed off $1.34 to $33.50 Friday, a slip from its 52-week high of $78 set in April.