Tech earnings on deck

January 14, 2002 Posted: 2028 GMT

NEW YORK (CNN/Money) -- The fourth-quarter earnings reporting season kicks off in earnest this week, and on deck to reveal their latest quarterly results are a raft of big-name technology outfits.

As a group, companies in the technology sector are expected to post a 65 percent decline in earnings from last year's fourth quarter, according to First Call, a research firm that tracks corporate earnings.

While that may seem like a large drop, it's actually less than had been expected going into the quarter. Many technology companies recently have said their results were stronger than previously thought, and tech stocks have been rising over the past few weeks in anticipation of a generally upbeat earnings season.

But even more important than the reported results for the fourth quarter will be the guidance executives provide for the current quarter and the remainder of 2002.

IBM, Microsoft top the list

One of the most closely watched reports of the week will be IBM, which is scheduled to reveal its latest quarterly results Thursday.

IBM (IBM: Research, Estimates) is the world's largest supplier of computer hardware and information technology services. Because of its broad mix of products and services as well as its extensive global reach, IBM has weathered the downturn in technology spending much better than some of its counterparts in the IT industry and has developed a reputation for being able to meet Wall Street's financial expectations even when many other technology outfits were falling short.

By First Call's count, analysts generally are expecting Big Blue to log a fourth-quarter profit of $1.32 per share on about $23.9 billion in sales. That would compare with a profit of $1.48 per share on revenue of $25.6 billion for the year-ago quarter.

The guidance executives provide for the current quarter and the remainder of the year will perhaps be the most influential on the tech sector. With its wide range of high-tech products and services, IBM is seen by many as a bellwether for the global IT industry.

Also reporting Thursday is software leader Microsoft (MSFT: up $0.11 to $68.72, Research, Estimates). Microsoft is the world's largest supplier of computer software and the dominant supplier of operating systems with its various versions of Windows.

Analysts generally are expecting Microsoft's earnings to decline modestly to 43 cents per share from 47 cents per share in the year-earlier quarter. Meanwhile, Microsoft's revenue is expected to rise to $7.2 billion from $6.6 billion a year earlier.

Microsoft had a busy quarter, with several new product introductions, including Windows XP, its newest consumer operating system, as well as its hotly anticipated Xbox video-game console.

While not providing specific numbers, the company has said sales of both those products have been robust, even going so far as to call Windows XP its most successful operating-system launch ever. Executives are expected to provide more specific details about those products, as well as their forecasts for the overall PC industry in 2002, after they report the fourth-quarter results Thursday afternoon.

Nortel Networks (NT: down $0.22 to $7.81, Research, Estimates), a top supplier of telecommunications equipment, also reports Thursday. Analysts generally are expecting the company to report a loss of 17 cents per share on about $3.4 billion in sales when it reveals its quarterly report after the close of trading.

During the same quarter a year ago, Nortel reported a profit of 26 cents per share on $8.8 billion in sales.

As have many telecom and data-networking equipment suppliers, Nortel has been hurt by a sharp decline in capital spending among service providers and large corporations.

Last month, Lucent Technologies (LU: down $0.07 to $6.97, Research, Estimates), which reports its results next week, warned investors that the slowdown had continued in the fourth quarter and would result in lower-than-expected sales and earnings.

Juniper Networks (JNPR: Research, Estimates) is expected to log a profit of 5 cents per share on $152.5 million in sales when it reports its latest results Tuesday. During the same period a year earlier, the company earned 24 cents per share on revenue of $295.4 million.

Redback Networks (RBAK: Research, Estimates) also is on deck. Analysts generally expect the company to log a loss of 21 cents per share on $38.7 million in sales when it reports Wednesday.  In the same period of the prior year, the company turned a profit of 5 cents per share on sales of $114.6 million.

A mixed bag of chips

Semiconductor leader Intel reports its latest quarterly results after Tuesday's close. The company is the world's largest supplier of PC microprocessors and as such is considered a bellwether for the semiconductor and PC industries.

Intel (INTC: Research, Estimates) recently upped its revenue forecast for the fourth quarter, saying it expects it to range between $6.7 billion and $6.9 billion. Executives entered the quarter aiming for revenue ranging between $6.2 billion and $6.8 billion.

The company said its gross margin, the percentage of sales remaining after subtracting product costs, will be between 47 percent and 49 percent. Intel typically does not provide specific earnings-per-share estimates, choosing instead to set expectations for gross margins.

The most recent consensus estimate of analysts polled by earnings tracker First Call is for Intel to log a profit of 11 cents per share on roughly $6.8 billion in revenue.

Intel executives said strong demand for the company's Pentium 4 processors was responsible for the better-than-expected quarter. The company has substantially ramped up production of those chips in recent months and has been aggressively pricing them in a bid to stave off tough competition from Advanced Micro Devices, which has been taking aim at Intel's market share with its Athlon XP+ line of processors.

They also said the seasonal upturn that chipmakers experience in the fourth quarter was stronger than they originally had anticipated. The fourth quarter is stronger for chipmakers, as sales of PCs and other electronics tend to increase during the holiday season. Intel executives also said there were shortages of Pentium 4 chips for some customers in the fourth quarter, a condition the industry hasn't seen in quite some time.

When they previously set expectations, they were cautious, warning that declines in consumer spending as a result of the Sept. 11 terrorist attacks could affect the normal seasonal pattern.

AMD (AMD: Research, Estimates), which garners roughly 20 percent of the global market for PC processors to Intel's 80 percent, reports its latest results after Wednesday's close.

The company last month also said its fourth quarter was better than it previously expected. The company said it now expects its total revenue in the fourth quarter to rise 10 percent or more from the $765.9 million it reported in the third quarter. Previously, AMD said it expected revenue to be flat to up 9 percent.

The company did not provide an earnings estimate, saying only that it still expects to return to profitability in the second quarter. Analysts generally are expecting AMD to log a loss of 18 cents per share on roughly $833.9 million in revenue, suggesting an 8.9 percent sequential increase.

Compaq (CPQ: Research, Estimates), the world's No. 2 PC supplier, said earlier this month that its fourth-quarter financial results would beat recent expectations as well.

Still, there are some lingering concerns about the longer-term outlook for the PC industry. Some analysts have pointed to a recent decline in production of motherboards, the nerve centers of computers, which they say could be an indicator of a sharp post-holiday decline.

Several other chipmakers are set to report this week as well.

RF Micro Devices (RFMD: down $0.01 to $18.73, Research, Estimates), which makes chips used in wireless communications products, is expected to post a profit of 2 cents per share when it reports Tuesday.

Analog chipmaker Linear Technologies (LLTC: Research, Estimates) also is set to report Tuesday, with Wall Street generally expecting a profit of 14 cents per share.

Programmable logic chip maker Xilinx (XLNX: down $0.35 to $42.68, Research, Estimates) reports Thursday. Analysts are looking for a profit of 4 cents per share.

Upstart microprocessor maker Transmeta (TMTA: down $0.10 to $2.48, Research, Estimates) is expected to log a loss of 18 cents per share when it reports Thursday.

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