"We want to be clear: We are not seeing any changes in company fundamentals," Neff wrote in a research note on EMC. "Instead, we think stock performance will move coincident with the economy as it did on the way down."
Indeed, things aren't looking all that rosy for EMC's fundamental business right now. The storage maker pre-announced disappointing results for the second quarter last week, saying it expected earnings to come in at around 4 cents to 6 cents per share, a far cry from the 17 cent per-share profit analysts were expecting. The miss was so bad that at least one analyst questioned the company's entire business model.
And the picture isn't much brighter over at Sun. The company joined the list of tech firms asking employees to take mandatory vacation. It disappointed analysts in April, when it reported first quarter revenue that fell short of expectations.
Both companies had been plagued by the cuts in technology spending, which have damaged just about every tech firm. But looking ahead, Neff said, the companies may be poised to reap the benefits when the spending eventually picks back up.
"From the stock's perspective, the key is not the company fundamentals at this point (which we view as lagging indicators), but the macroeconomic demand environment," he wrote. "And if the economy turns up, the stock will move up (and the company fundamentals) will then follow suit.?
Of course, when that pickup will occur is the key question. Neff warned that he could be a bit early in predicting a bottom for the tech slump "if these nascent signs of a turn (e.g. factory orders, consumer spending, purchasing managers data, and other indicators) turn out to be a mere upward blip in a sustained recession."
Neff upped his rating on both companies from "attractive" to "buy." The news sent Sun shares up 36 cents to $14.04, while EMC rose 43 cents to $22.03 in premarket trading.