On the theory that if you're going to take the trouble to analyze somebody's work and comment you might as well post the work instead of restricting it. Today's WSJ had an interesting "Ahead of the Tape" pointing out that other than Financials earnings were holding up well. Reasons for which we've discussed extensively before.Grading the Takehome: Bottoms, Earnings & Outlooks,Review the Bidding, Count the Cards: EPS Growth Rates,Have You Seen the Elephant ?: More on Earnings. These are btw worth reviewing in their own for some differentiated perspective on the earnings outlook from what you may be hearing on bubblevision. Now we may be wrong but at least we've laid out the argument with data and our feeble attempts at logic. Feel free to disagree but given stories like this you should have an alternative toolkit for compare and contrast.
The parts that caught our eye was the discussion of how well Tech earnings are doing and how poorly their stocks are in general. Here are some relevent excerpts with our 4-Part assessment of some fundamental problems after the break.
Earnings Slump Still Confined:Technology earnings have been an important, and potentially overlooked, bright spot. In the latest earnings season, the technology sector has been the Best in Show. But tech stocks have been treated more like mutts.Fourth-quarter earnings of technology companies in the Standard & Poor's 500-stock index are on track for a 26% increase from the prior year, according to Thomson. That makes it the best performance of any sector in the index. Even computer maker Dell, which has struggled to compete with rival Hewlett-Packard, is expected to report healthy operating earnings growth today, at 36 cents a share, up from 30 cents a year ago, a 20% gain.There have been some scares, but 76% of tech companies beat analyst estimates for the fourth quarter, according to Thomson.
Taken together, tech earnings have been 5% higher than expected. Yet the tech-stock-focused Nasdaq Composite index hasn't benefited much. Though it has recovered 2.5% from its late-January low this year, it lags behind the S&P's 5.4% rebound and the Dow's 6% comeback. And the Nasdaq is still down 18% since Oct. 31.Could investors be missing an opportunity?
BtW just by way of compare and contrast consider the following headline from Bloomberg: Dell Profit Misses Estimates as Retail Expansion Falters; Shares Decline.
Not to mention Sprint, et.al. But we'll pick up all that coverage in the next Readfest.
----- Original Message -----
Sent: Thursday, February 28, 2008 6:45 PM
Subject: Tech Spending Outlook
Guys - decent job of reporting but you might want to take a look at the recent spate of rapid and significant tech spending outlooks from Forrester, Gartner, ChangeWave, et.al. Several of which were covered on the Biz Tech blog of the Journal. Not quite sure who you're talking to but more than a bit of it is whistling past the graveyard for several reasons. Let me list them in reverse order of scale, scope and duration.
1) Looking back one could see the economy flattening out last year yet in fact the markets in general were running over their long-term uptrends, though I'm no technican I can draw some lines and see a trend channel. That done one can clearly see the tech markets, especially the NDX bubbling way above as a self-sustaining "we believe our own stories" frenzy built up. Most of the recent downturn simply took the air out of that bubble without really doing much about the l.t. trend.
2) Capex in general is a lagging indicator in the basic business cycle. We're relatively early days as yet in that and consumer spending has only recently begun to turn down with the major drivers, e.g. MEW, that sustained it only now beginning to turn down. Even if your outlook is benign and sanguine ( a word which used to mean bloody) if you take a gander at the Fed's outlook it's pretty bleak to 2010. Not a great encouragement for an uptick in tech spending either.
3) There ARE huge shifts in various industries and sectors but tech has become a mature industry which will follow more along the business cycle for a long time to come. That said as more traffic with higher data storage and transmission requirements grows there'll be some demand for storage, processing power and telecom equipment. And the shift from switched-networks to VoIP will continue to cause major telecom equipment expenditures. A good example being Verizon's FiOS investments. But it'll be nothing like the upticks we say in the late '90s - instead it's mostly replacement investment and some incremental capacity spending. One of the reasons for the recent narrow telecom equipment upticks, I think, was that all the huge excess of dark networks was slowly getting into use plus some of it was dying off anyway.
4) There is a great deal of ill-will and resentment on the part of business buyers that was built up on the over-hyped and none-delivered experiences of the tech boom. Corporate IT has no respect left by and large for their vendor community, is increasingly at odds with their own business and user communities and coming under increased budget pressures. This doesn't bode well either.