Intel, IBM set to report

January 13, 2001: 7:00 a.m. ET

Street braces for latest financial results from tech bellwethers next week

NEW YORK (CNNfn) - The latest profit warnings from two leading computer makers underscored the recent weakness in the PC market, and earnings releases on tap next week will provide a look at just how bad things were and where industry executives see things headed in the year ahead.

Intel, the world's largest supplier of PC microprocessors and a bellwether of the PC and semiconductor industries, will give the Street its first detailed look at how those segments held up when it reports its latest results on Tuesday.

Then on Wednesday, Microsoft, which dominates the market for PC operating systems with its various Windows products, will help fill in some of the gaps when it highlights its latest quarter.

Both companies ratcheted down their financial expectations during the quarter, blaming a global slowdown in PC sales. And they were not alone. A slew of other tech outfits, including Compaq, the world's leading PC supplier, also said a weaker PC market would weigh on their results.

Click here for a list of upcoming earnings reports

On Thursday, Hewlett-Packard and Gateway rounded out the list of PC companies that will miss their previous financial targets, blaming continued deterioration in PC demand, especially in the United States.

More important than the results for the quarter, though, will be the guidance management of these companies provides for 2001. For the most part, they are expected to forecast modest profit growth.

On average, analysts are expecting companies in the tech sector as a whole to report profit growth of 2.7 percent for the December quarter, according to the latest survey conducted by earnings tracker First Call.

Moving forward, they expect profit growth in the first quarter of 2001 to be 3.1 percent but then drop to just 8 tenths of a percent in the second quarter, according to the First Call survey.

Here are highlights of some of the tech companies slated to report their latest results next week:

Intel – The sluggish demand for PCs will weigh on Intel's (INTC: Research, Estimates) financial results for the quarter. In early December, the world's largest supplier of PC microprocessors told analysts to expect fourth-quarter revenue that is roughly equivalent to the $8.7 billion it logged in the third quarter. That's well below the 4-8 percent sequential revenue increase the Street had expected prior to the warning. First Call's consensus earnings estimate for Intel in the fourth quarter is 38 cents per share, although some analysts are expecting earnings of as much as 42 cents per share during the quarter. Intel is expected to report its results on Jan. 16.

Handspring – PC vendors may have had one of the worst holiday selling seasons in recent memory, but not so for handheld computer makers. A recent report from research firm PC Data showed that while retail and mail-order sales of PCs had declined sharply, sales of handheld devices, such as the "Visor" devices from Handspring (HAND: Research, Estimates), more than doubled in November.

And that has some company watchers anticipating an upside surprise from Handspring when it reports on Jan. 16. The Street is generally expecting an operating loss of 16 cents per share, which would compare with a loss of 12 cents per share a year earlier. Credit Suisse First Boston analyst Marc Cabi is among the more optimistic Handspring watchers. He forecasts a loss of 14 cents per share, although he said there is a chance the company could do even better than that. "We believe there is upside to our estimates due to strong execution, overall strength in the devices segment and a relatively strong holiday selling season," Cabi said.

Apple Computer – Analysts have very low expectations for Apple's fourth-quarter results, after the company warned of a huge shortfall in revenue which will cause it to report its first quarterly loss in three years.

Apple said it expects to report revenue of about $1 billion and a net loss, excluding investment gains, of between $225 and $250 million. Analysts are now expecting Apple to record a loss of 65 cents per share during the quarter, compared with previous expectations of a profit of 3 cents per share.

The company blamed the shortfall on weak education-related and Power Mac G4 Cube system sales. Last week, Apple hosted its annual "Macworld" tradeshow, but Wall Street analysts were largely unimpressed with what they saw. Merrill Lynch's Steve Fortuna said he walked away from the event "with the sense that the near-to-medium term prospects for the company are any brighter than previously thought." Meanwhile, Bear Stearns analyst Andy Neff said he "came away with the sense that Apple is very much in a transition mode, trying to fine-tune its strategy."

Apple is set to post its latest results Jan. 17.

IBM – High-tech bellwether IBM (IBM: Research, Estimates) is one of only a handful of companies in the sector that has not warned that lower-than-expected demand will cause it to miss its most recent quarterly financial projections, and there is a split body of opinion on Wall Street as to how Big Blue held up in what proved to be a difficult environment for many of its competitors.

Just this week, Salomon Smith Barney's John Jones said strong sales of its latest mainframe computers, which sell for as much as $1 million each, was a "notable positive" for IBM in the fourth quarter, offsetting weakness in other areas, especially PCs. Wit Soundview's Gary Helmig concurred, saying he previously had expected IBM to ship between 150 and 200 of the high-end systems, while it appears as if that figure now is likely to come in between 200 and 300 units.

Still, several analysts have raised red flags on Big Blue. Prudential Securities analyst Kimberly Alexy recently reduced her revenue forecast to $24.5 billion from $25.3 billion, citing weakness in the notebook computer business. Merrill Lynch's Tom Kraemer also turned negative on IBM recently, downgrading his rating on its shares to "neutral" from "accumulate," saying he expects the company to continue to reduce its revenue-growth projections moving into the new year.

IBM is set to report its latest results on Jan. 17. The latest consensus earnings estimate is $1.46 per share, although individual forecast range between $1.38 and $1.53 per share. Revenue is generally expected to total about $25.5 billion.

i2 Technologies - i2 (ITWO: Research, Estimates) is a leading business-to-business software company whose products allow companies to set up marketplaces that enable customers and suppliers to do business together in real time. It also makes software for supply-chain management, customer management and product-lifecycle management.

Unlike many of the companies in the PC segment, i2's revenue in the December quarter is expected to rise sharply from the same period a year earlier. Thanks to the increasing use of the Internet for supply-chain management and inter-company marketplaces, i2 is expected to log sales of roughly $344 million, which would be a 96 percent increase over $175 million a year earlier.

i2 is set to report its latest results on Jan. 17, with analysts expecting a profit of 8 cents per share.

Sun Microsystems – When Sun Microsystems (SUNW: Research, Estimates), the world's leading supplier of Web servers, reported its fiscal first-quarter financial results last October, executives told the Street to expect the company's fiscal second-quarter revenue and earnings to be slightly more than they had previously forecast. At that time, they said they expect revenue growth to be in the high-40 percent range, with earnings per share increasing either at that level or below it. Then, after several tech companies chimed in with revenue and earnings warnings, Sun executives reiterated that guidance in mid-November, saying they remain on track to meet their financial goals for the quarter as well as the fiscal year. Analysts polled by First Call are expecting Sun to report a profit of 16 cents per share when it reports its latest quarterly results on Jan. 18.

Microsoft – Last month, the software giant warned investors that a worldwide slowdown in personal computer sales will result in disappointing profits and revenue. It was the first time in 10 years that the company issued a sales warning. Microsoft (MSFT: Research, Estimates) said its revenue for the December quarter is now expected to be between $6.4 billion and $6.5 billion, while earnings per share will come in between 46 cents and 47 cents. That was 5 to 6 percent below the company's prior guidance. The company will report its results on Jan. 18. "The slowdown in consumer PC sales could not have come at a worse time for Microsoft," said CIBC World Markets analyst Melissa Eisenstat. "The December quarter is seasonally the heaviest period of consumer buying because of Christmas."

Inktomi – Inktomi (INKT: Research, Estimates), which makes software that speeds the flow of information over the Internet, warned earlier this month that its fiscal first-quarter revenue and earnings will come in below its previous expectations. The company said revenue for the quarter ended Dec. 31 is now expected to be $80 million to $81 million, compared with its previous revenue forecast of $89 million to $91 million. Inktomi said it expects earnings for the quarter to be between breakeven and a penny per share, compared with its previous guidance of earnings between 2 cents and 3 cents per share. Executives at the Foster City, Calif., company blamed the shortfall on a slowdown in spending on Internet infrastructure products. The company is scheduled to report its results on Jan. 18.

Nortel Networks – As the leading supplier of fiber-optic networking equipment, there has been a lot of concern on Wall Street about Nortel's (NT: Research, Estimates) ability to hit its fourth-quarter financial targets amid a slowdown in spending by telecommunications companies that has caused many other fiber-optic outfits to warn of quarterly shortfalls.

The company's stock has fallen off sharply since it missed its revenue targets for the third quarter, but executives have promised not to give a repeat performance when they report the latest results on Jan. 18. Last month, they reiterated their forecast for fourth-quarter revenue between $8.5 billion and $8.8 billion and earnings of 26 cents per share. The consensus estimate of analysts polled by First Call is for Nortel to report a profit of 26 cents per share on revenue of 8.6 billion.