Semiconductor share prices surged yesterday as investors looked ahead to earnings releases later this week from Intel, Advanced Micro Devices (AMD), and other vendors. However, analysts cautioned that while the market looked healthier, there was no hard evidence of a long-awaited recovery in hardware technology spending.
Hardware vendors Intel, AMD, IBM, Apple Computer, and Gateway will report their quarterly earnings results over the next two weeks. Those results will show, at least to some degree, whether IT spending is on the rise. The dominant PC vendors, Dell Computer and HP, report earnings on a different schedule than most companies, and won't post quarterly results until August.
"We're seeing very faint signs of a recovery," an analyst with Deutsche Bank Securities, Ben Lynch, said. Some components vendors and resellers had reported that sales are picking up in the corporate sector, he said.
An unscientific survey of resellers by Thomas Wiesel Partners this quarter showed an increase in the number of companies that expected spending to increase during the second half of the year, senior research analyst for Thomas Wiesel, Eric Gomberg, said.
Those resellers do not expect a return to the growth patterns of five years ago, but about two-thirds of respondents foresee an uptick in technology spending in 2003, as opposed to one-third of respondents who felt that way last quarter, he said.
The primary fuel for yesterday's rally was an upgrade of Intel's stock (INTC) by Merrill Lynch & Co. analyst Joe Osha. In an emailed research note, Osha upgraded Intel's stock from "neutral" to "buy," based on better expectations for gross margins and increased popularity of notebook PCs.
Intel would benefit from the notebook trend because of its successful launch of its Pentium M processor, which commands a higher price than other mobile chips, Osha said.
The company's stock rose $US0.78, or 3.36 per cent, to $US24.12 in late-afternoon trading yesterday on the Nasdaq.
Analysts surveyed by Thomson First Call expected Intel to report earnings per share of $US0.13, and revenue of $US6.7 billion. Intel said in June it expects second-quarter revenue between $US6.6 billion and $US6.8 billion.
AMD does not have as strong a position in notebooks, and is looking to the server world for growth in the second half of the year. AMD introduced its Opteron processor in April, and is hoping that business customers will want that chip's ability to run both 32-bit and 64-bit applications at competitive performance levels.
However, AMD’s second-quarter results will probably be disappointing. AMD warned investors in June that it would fall $US100 million short of the $US715 million it had previously expected in second-quarter revenue, blaming a slow PC and cell phone market in China as a result of the SARS (severe acute respiratory syndrome) virus outbreak.
Since the Opteron launch was unlikely to have any real effect on second-quarter revenue, the shortfall shows how sensitive AMD was to market fluctuations in China, Lynch said.
China made up about 10 per cent of the worldwide PC market, and any weakness there was bound to have an impact on the semi-conductor industry, he said.
Intel has also noted that SARS could have an effect on its business, but analysts expected any effect to be minimal due to Intel's size. Analysts in Asia-Pacific have predicted a 6 per cent decline in second-quarter PC sales in China, as well as a decrease in sales of cell phones that use flash memory from both Intel and AMD. But PC sales in China are expected to recover in the third quarter, according to IDC Asia-Pacific.
Apple and Gateway will also report earnings over the coming weeks as the two PC companies struggle to stay within sight of market share leaders Dell and HP. Both companies have looked to other products and markets in order to increase revenue.
Apple released a new version of its popular iPod portable music player along with the launch of its iTunes online music store in April. Gateway has embarked upon a dual-headed strategy to become more competitive among business customers with new servers and storage products, and to raise its profile among consumer electronics customers.