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Tech Industry

Tech earnings easily surpass expectations

Although it?s still early in the reporting season, many technology companies have so far exceeded earnings expectations.

Giving yet more fuel to already high-flying stocks, a steady stream of technology companies have reported quarterly earnings that exceed Wall Street expectations.

On average, earnings for companies in the technology sector have grown 22 percent compared to year-ago levels, according to First Call spokesman Chuck Hill. Wall Street analysts had expected earnings for technology firms to grow 11 percent, Hill said.

"The big surprise was with Y2K," Hill said,

Earnings surprises
Several tech companies posted quarterly earnings that surpassed analyst expectations.
Company Expected earnings* Actual earnings
Apple Computer $0.89 $1.00
America Online 0.08 0.09
Advanced Micro Devices 0.01 0.43
Microsoft 0.42 0.47
IBM 1.06 1.12
Citrix Systems 0.37 0.38
Unisys 0.45 0.46
Intel 0.63 0.69
* based on a poll of analysts by First Call
noting that many analysts may have overreacted to concerns that sales would plummet as companies held off purchases to deal with the so-called millennium bug.

Soaring tech stocks helped the Nasdaq post a record gain of 86 percent in 1999. But early this year investors started to sell and pushed the Nasdaq down. The Dow Jones Industrial Average, which is less dependent on tech stocks, rose in the meantime.

Today, that trend reversed as investors once again bought technology stocks, partly as a result of strong earnings reports. The Dow closed today at 11,351.30, down 138.06, while the Nasdaq gained 38.21 to finish at 4189.50.

Companies in a number of technology sectors have contributed to the industry's overall performance. Chipmaker Advanced Micro Devices, computer maker Apple Computer and software giant Microsoft are just a few names that have reported strong numbers this quarter.

AMD yesterday blasted past analysts? consensus estimates, earnings 43 cents a share, while Wall Street expected a profit of only a penny. The chipmaker's shares today rose to a new 52-week high of $45.13 in early trading before falling back at the close.

Apple also turned in a stronger-than-expected performance yesterday, earning $1 per share, well above profit expectations of 89 cents per share. The computer maker's shares soared as much as $14.81, or about 14 percent, to $121.50 today.

Microsoft reported earnings of 47 cents a share on Tuesday, compared with estimates of 42 cents, according to First Call. Despite beating estimates, the company's shares slipped $8.31, or about 7 percent, to close yesterday at $107, after the company tempered the earnings release with warnings of slower growth this year.

Ed Keon, director of quantitative research for Prudential Securities, said the tech industry typically beats estimates by 5 to 7 percent and has outperformed forecasts each of the past five years.

He added that the technology sector has been particularly good at throwing cold water on some of the more hyped industry propects.

"Because technology has been growing so fast, it's been easier for companies to temper expectations by saying something like, 'We're expecting to grow 25 percent rather than 30,'" Keon said.

Although tech companies have reported stronger-than-expected quarterly results to date, Hill cautions that it's still early in the game. Of the 68 tech companies in the Standard & Poor's 500 Index, only 25 have reported earnings.

Lucent Technologies, for example, reports results this afternoon. The company had already warned that it will earn 36 to 39 cents, considerably lower than previous expectations of a profit of 54 cents. The revised consensus now stands at 37 cents, according to First Call.

Compaq Computer will report next Tuesday and is expected to earn 16 cents per share. Networking giant Cisco Systems is scheduled to release earnings Feb. 8, and analysts say the firm will earn 23 cents per share.

"Those companies that have issued warnings should do at least what they said they should do. But Cisco still has to report and Compaq, which is reporting next week, may pull the (11 percent figure) down," Hill warned.