Earnings Season Outlook: More Bad News Likely From Key Tech Stocks

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By now investors have had time to digest the notion that technology company sales and earnings are just not going to live up to prior expectations in most cases.  Investors are learning that they should be cautious with technology leaders such as Apple Inc. (NASDAQ: AAPL), Intel Corporation (NASDAQ: INTC), Google Inc. (NASDAQ: GOOG), and Microsoft Corporation (NASDAQ: MSFT) ahead of their earnings reports on deck for next week.  The widespread earnings and sales warnings from key companies out there are just too many for there to be a coincidence here.

ADTRAN Inc. (NASDAQ: ADTN) is only a $1.5 billion market cap in networking equipment, but shares have slid by 15% after a very disappointing earnings report.  At $23.02, the prior 52-week range was $25.46 to $40.05 and that means that it has almost been cut in half.

Chip equipment player KLA-Tencor Corporation (NASDAQ: KLAC) tried to raise its dividend, but the larger rival Applied Materials Inc. (NASDAQ: AMAT) issued an earnings warning the same week.  Applied is the leader in cap-ex for semiconductor companies and it has now lowered its industry wide revenue projections for the year.  That won’t just be an Applied Materials issue.  Advanced Micro Devices, Inc. (NYSE: AMD) seems to do poorly in good times and in bad times, but its warning was rather alarming at a double-digit drop sequentially in revenues rather than 3% growth.  Ouch.

Microsoft Corporation (NASDAQ: MSFT) disclosed a whopping $6+ billion non-cash accounting charge due mostly to its aQuantive acquisition bringing a goodwill writedown.  What the company disclosed was that its online services unit is not growing as fast as it had hoped.  That was a ‘warning-lite’ as far as we are concerned.

And what about Informatica Corp. (NASDAQ: INFA) in enterprise data integration and quality management?  This outfit is now worth only about $3.2 billion after a 25% share price drop after its warning last week took its sales forecast down to a range of $188 to $190 million versus estimates of about $217 million.

Seagate Technology PLC (NASDAQ: STX) dropped a little in share price last week with its earnings warning, in part due to a lower market share and due to a supply issue.  It appears that the market had figured this out when it comes to Seagate.  The drive-maker lowered quarterly sales estimates to about $4.5 billion from a prior $5.0 billion projection.

Research in Motion Ltd. (NASDAQ: RIMM) has now warned of operating losses being expected to continue.  Unfortunately, RIM does poorly now in good times and in bad times.  Apple Inc. (NASDAQ: AAPL) and Google Inc. (NASDAQ: GOOG) are killing the company in the smartphone markets.

Even in mid-June we saw that Adobe Systems Incorporated (NASDAQ: ADBE) managed to beat earnings expectations, but its guidance instantly took about 5% out of the stock and shares are down another 4% or so since then at $30.05.

Even the previously immune storage market has some concern here.  NetApp, Inc. (NASDAQ: NTAP) warned as long ago as the end of May that revenue would be down about 12% to 18% sequentially to $1.4 billion to $1.5 billion versus estimates of just over $1.6 billion.  The earnings warning was even worse: $0.34 to $0.39 EPS versus a consensus of $0.59 EPS at the time.

The guidance from Dell Inc. (NASDAQ: DELL) was the first real blow to Intel Corporation (NASDAQ: INTC) expectations.  Even the mighty attractive new Dell dividend yield does not change the fact that investors have reason to ignore the global pressure.  The threat from Apple Inc. (NASDAQ: AAPL) is also a continuing thorn in Dell’s side.

These warnings and negative news of late are certainly not the only recent warnings signs and areas of concern.  The China growth story and the emerging markets growth stories are slowing down significantly at a time when Europe has entered into recession. 

One thing may be worth noting to offer at least some hope that things might not be so bad.  John Scherr of WhisperNumber.com told us, “We expect the Apple whisper number to climb as we get closer to their earnings report. Last quarter Google topped the whisper number by 49 cents, and in the comparable quarter last year topped the whisper by 87 cents. Last quarter Intel reported earnings in-line with the whisper number, and in the comparable quarter last year reported ten cents ahead of the whisper number.”

Here are the estimates we have for the Big-4 of the technology reports in the next week with estimates from Thomson Reuters:

  • Apple Inc. (NASDAQ: AAPL) expectations are $10.34 EPS on $37.37 billion in sales, and the price of $605 compares to a consensus analyst price target of $723.07. Apple’s 52-week range is $348.62 to $644.00.
  • Intel Corporation (NASDAQ: INTC) is expected to report $0.52 EPS on $13.57 billion in sales, and the price of $25.40 compares to a consensus analyst price target of $29.29 and compares to a 52-week range of $19.16 to $29.29.
  • Google Inc. (NASDAQ: GOOG) expectations are $10.12 EPS on $8.44 billion in sales, and the stock price of $570 compares to a consensus analyst price target of almost $737 ahead and compares to a 52-week range of $480.60 to $670.25.
  • Microsoft Corporation (NASDAQ: MSFT) is expected to report $0.62 EPS on $18.17 billion in sales, and its share price of $29.50 compares to a consensus analyst price target of about $35.60 and compares to a 52-week range of $23.79 to $32.95.

In our stories regarding the “Sell in May and Go Away!” strategy, we noted over and over how the summer can be a very bad time for investing in technology.  Expecting weakness is looking more and more likely each day now.

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JON C. OGG