How Bad Are Tech Earnings?
Eric Savitz of Barron’s notes that “earnings season is off to a miserable start” as far as Tech is concerned. He gives 5 key reasons:
1. PC DEMAND IS SUFFERING big time. Microsoft and Intel are both cutting jobs; Advanced Micro Devices (AMD) posted a 33% drop in profits; Disk-drive maker Seagate ‘s (STX) revenues were down 34%; Logitech (LOGI), reported a March-quarter miss.
2. MOBILE-PHONE SALES are in trouble. Nokia (NOK) reported a 19.5% Q4 revenue decline; Warnings were already out from Motorola (MOT) and Sony Ericsson;
3. CONSUMER-ELECTRONICS demand is non-existent. Sony (SNE) expects a loss for its March 2009 fiscal year. GPS device maker TomTom (TOM2.AE) issued an earnings warning; and Foxconn International (2038.HK)
4. THE CHIP BUSINESS CONTINUES to erode. Taiwan Semiconductor (TSM) reported a 31% Q4 earnings decline. MEMC Electronic Materials(WFR) sees March-quarter revenues down 50%; Marvell (MRVL) sharply reduced its Q4 guidance.
5. EVEN THE GOOD EARNINGS REPORTS aren’t so good. IBM’s Q4 revenues actually missed by more than $1 billion, dropping 6%, and their full-year profits reflect cost cutting, not top-line growth. Apple (AAPL) exceeded both top line and perofit expectations, but iPhone sales disappointed, falling 36% from Q3; desktop Mac sales were weak, and Apple same-store sales were down from last year. Google (GOOG) beat estimates, but concerns as the ad market continues to soften.
Source:
You Knew Earnings Would Be Bad, but This Bad?
ERIC J. SAVITZ
Barron’s TECHNOLOGY TRADER JANUARY 24, 2009
http://online.barrons.com/article/SB123275426986311581.html
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January 26th, 2009 at 4:12 pm
What was GOOGs net income drop? 65% or something? IBMs solid quarter was almost entirely due to a lower tax rate and lower share count via manipulation, err, buybacks. I covered it more here:
http://www.pragcap.com/the-big-blue-bounce
But don’t worry. The media will tell you tech earnings are “better than expected.”
January 26th, 2009 at 4:24 pm
On top of the bad earnings, not many tech companies are offering guidance these days.
January 26th, 2009 at 4:31 pm
I was looking at legging into a position on QCOM. It seems to have a good habit of bouncing back in the year following a sharp drop. Anyone care to share opinions?
January 26th, 2009 at 4:32 pm
Sorry I am an idiot, I meant ORCL. I should already have my answer then….I do watch QCOM a little as well….
January 26th, 2009 at 4:34 pm
“Mustard seeds” for short sellers.
January 26th, 2009 at 4:35 pm
ORCL will probably weather the storm but isn’t a good portion of their revenue selling large, expensive enterprise database software? I would think that’s an investment most companies can/will put off buying/upgrading for as long as they can in this environment and would thus be careful with them.
I’m with Steve Barry on tech. Riding QID and adding to it on the dips. We ain’t seen nuthin’ yet on tech.
January 26th, 2009 at 4:41 pm
What is up with the mustard seeds. Where did kudlow get that line from.
GOOG will be at $200 by the end of the year. They are a one trick pony. IBM,HP,Dell no one is doing good. Corparate IT spending has dropped off a cliff.
January 26th, 2009 at 4:50 pm
I tend to agree that tech stocks are vulnerable with declining earnings, extra-terrestrial P/E and very often a lot of debt. Not the place to be in any bear market, unless you are Dennis Kneale, aka Larry Kudlow’s glove puppet.
Have been long for 5-6 days, my usual stuff. Today I took off my trades in TBT, PST and SLW and picked up some QID and FAZ. We seem about due for another reversal day, and the SPX stopped dead short of 850 today.
January 26th, 2009 at 5:09 pm
Robertm73 @ 4:41
There are a number of references to that in the bible. I’m no biblical scholar by any stretch, but here’s one example:
“Then said he, Unto what is the kingdom of God like? and whereunto shall I resemble it? It is like a grain of mustard seed, which a man took, and cast into his garden; and it grew, and waxed a great tree; and the fowls of the air lodged in the branches of it”.
– Luke 13:18–9
January 26th, 2009 at 5:11 pm
leftback @ 4:50
upside trader says stay with TBT
http://upsidetrader.blogspot.com/
January 26th, 2009 at 5:19 pm
I think ORCL will maintain, or drop less than the others. Couple of reasons.
It is the very companies that Oracle sells to that are the most capable of surviving in this environment. Companies that have integrated supply chains, or are not dependent upon letters of credit or as dependent upon financing, will be able to take advantage and expand their market share.
These companies can still afford to invest in IT if they see it as a way to squeeze out more margin and expand market share.
It’s the big companies that will continue to get bigger, while the small companies will shrink, or go away.
I think in a few year (5-10) we could be going the route of trust bustin like the turn of the last century with Teddy Roosevelt. Didn’t a lot of those companies consolidate and get bigger during the 1873 crisis?
January 26th, 2009 at 5:27 pm
@ DL: Thanks. I agree completely over the longer term. I have a large illiquid position shorting the 10-year, in addition to which I trade TBT and PST. Nothing goes up or down in a straight line.
What concerns me this week is : a) safe haven buying of long bonds and b) Bernanke speak on Wednesday about the Treasury buying the long bond to hold down mortgage rates. I am looking to get into TBT again if/when the 10-year yield reaches 2.50.
January 26th, 2009 at 5:37 pm
CNBC reporting on what sounds like it may well be another Ponzi on Long Island.
Agape, it is called. You can’t make this stuff up.
I bet inwestors were agape when they found out.
Mish’s site has an evisceration of Peter Schiff today, gold bugs may find this interesting, if a bit unfair.
Certainly Mish probably made more money in Treasuries than Schiff did in 2008.
Still, methinks someone better know when to get out of long bonds before they self-immolate.
- Mish might be a bit jealous of all that TV time….
January 26th, 2009 at 6:02 pm
It will get worse…in 1Q 08, a weaker dollar added around 11% to foreign earnings growth y/y…this 1Q, a stronger dollar will REDUCE foreign earnings growth around 13% y/y…that’s an astounding reversal of around 2500 bps.
January 26th, 2009 at 6:19 pm
Seeing lots of deals for new good powered laptops from HP, Acer, etc. now. 3-4GB RAM, 300-500GB hard drive, 2.xGhz CPU’s for $400-500!
January 26th, 2009 at 6:59 pm
On another note, a ghastly earnings report by American Express, but don’t worry, it’s already “baked in” and “the bottom” is in.
January 26th, 2009 at 7:39 pm
On #1, the upgrade cycle is over. There is no longer any technological reason to upgrade your home computer. Unless something breaks, folks keep what they have.
On #2, everyone is buying an iPhone.
On #3, if you have an iPhone, you don’t need a GPS. Maybe you don’t need a notebook. (See #1).
But yes, AAPL’s revenue growth is slowing. That’s for sure. Take a look at quarter to quarter the last few.
January 26th, 2009 at 7:42 pm
Leftback re Peter Schiff
Peter got it half right. Meaning, he predicted USA would go into a recession/depression. However, Peter totally bought into the de-coupling theory and predicted that China, etc. would continue growing even if USA was in the crapper. I read Peter’s book–something about surviving the upcoming financial armagedon–I though he was right on, except for the whole de-coupling argument. So China is down 70% and, thus, his clients are too. If he was just completely wrong and stayed in US equities then his clients would only be down 40%. Who says stupid doesn’t pay?
January 26th, 2009 at 9:25 pm
Steve B,
Right as usual, pay attention to the dollar, if it drops tech will benefit, if the move up gets going even more tech is screwed and QID will be nice.
Also, I’d be careful with Oracle as well. It was rec’d in this weeks Barron’s by someone on the round table (Scott Black maybe?), I’d be careful of the idiot bounce in the stock. Oh wait, sorry the average Barron’s reader has a 3 million dollar portfolio.
January 26th, 2009 at 10:00 pm
No mention made of the myriad Web 20 applications and companies that have launched (essential) services, but were founded on non-viable advertising supported models. They might have been paid applications, but the well was poisoned. Many will go the way of the honest auto mechanic.
January 26th, 2009 at 10:25 pm
iphone sales disappointing? To who, the analysts, who all managed to get most of the other numbers wrong? Mac sales weak? Again, based on what? Don’t see Apple laying anyone off. It’s interesting that in these times the best we get out of most CEO’s is to lay people off. Caterpillar 20,000 jobs. Has the CFO advised the CEO that their market cap is 20 billion. So this will save 800 million or so for a short period of time, until they end up rehiring them when things turn around. Is there going to be anyone who stands up in corporate friggin America who has the balls to say, “you know what, we could cut jobs and improve our bottom line briefly, but you know what, we are a huge company who is in no danger whatsoever of failing, and we will weather the storm and we will weather it with the people who got us here. Period. Don’t like it then sell your shares, we’ll buy all you got right now.
January 26th, 2009 at 11:11 pm
We have purchased quite a bit over the past year and will purchase quite a bit in the new year. We are a very small fish though, 75 users. The deflationary spiral is something incredible to watch.
1) Quad core processing has basically destroyed the mid to high tier market. Ten years ago, five years ago I would have been looking at a quad-processor machine. $15,000 easy. I just purchased a single processor quad core for $1800. Altogether with drives it was about $3000.
2) Processor speeds have fundamentally changed the storage market. There is no longer a need to offload processing, so expensive RAID controllers are out. The most basic server can handle a terabyte in a two or four drive array. (Admittedly performance will keep most people out of those implementations.)
3) 64 bit processing has put a serious hit on the top end. This is more-so the case since 16-bit processing isn’t supported by Windows 64 which was more of a ceiling on Windows 32 than than the 32-bit address space.
4) Software development on .Net and the available building blocks available in the OpenSource community have limited the ability of vendors to increase prices. The company I am working for is in a minor vertical and has had a few players writing on .Net challenge the leading couple companies for market share who themselves are in the process of porting to .Net. It is theoretically possible to set up an e-commerce site with no capital outlay for software.
In short, it is very difficult to see the catalyst for higher tech earnings at this point.
January 27th, 2009 at 4:26 am
@Jojo99 Says: January 26th, 2009 at 6:19 pm
Seeing lots of deals for new good powered laptops from HP, Acer, etc. now. 3-4GB RAM, 300-500GB hard drive, 2.xGhz CPU’s for $400-500!
Picked a second one up at a Christmas sale for $450 after shipping costs. Both are Acer. Very good brand that will have me as a customer until they fail me. Mine has what you listed but only a 250GB hard drive. It will take me a while to fill it anyway and I have portable hard drive if I need any more space. I had to get a second laptop though because my old box died so I have to have a machine and a spare for trading and some minor online business that I do. Both those things pretty much need daily monitoring. Now I have two laptops and I see them as being in the mainstream for everybody as their home machine, for now at least, considering they are so portable and thus much more versatile. I also like that you can plug a monitor into the laptop and run dual screens. That is a great trading tool
The only thing that is creeping me out about all the new laptops is that they all have webcams built in. It is very 1984ish. I have tape over mine because who knows if someone is hacking into your machine and checking out if you are good to steal from
I think tech is suffering from both the creative destruction of its free market industry(I believe tech is the closest thing to free market we can see in the modern business climate. Although now that they are getting bigger they are learning to lobby…unfortunately) and the suffering economic demand of lower MEW, RE and credit based ‘toy’ buying. It is thus hard to really determine how much is true pain and how much is competitive warfare at this point. Both are contributing big chunks of demand destruction if you ask me
April 29th, 2009 at 8:14 pm
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