Apple, eBay outlooks fail to meet expectations

Daisuke Wakabayashi

SEATTLE: Apple Computer Inc. and eBay Inc. on Wednesday joined Yahoo and Intel on the list of tech heavyweights that failed to live up to investor expectations for their outlooks.

Shares of Apple and eBay fell in after-hours trade.

But component makers Advanced Micro Devices Inc. and Seagate Technology gave strong forecasts.

Investors were hesitant to dismiss the prospects for the entire sector, instead blaming lofty earnings expectations and rich share price valuations.

"It's not that tech earnings are specifically weak, but some investors just got a little ahead of themselves as far as where earnings estimates were going to go," said Bill Kornitzer, portfolio manager at Buffalo Funds.

It marked a second straight day for bad news from technology bellwethers. Investors punished Yahoo Inc. and Intel Corp. on Wednesday after they missed estimates and made soft projections on Tuesday.

Apple forecast current-quarter results below Wall Street expectations, saying in the holiday quarter it had seen a small pause in demand for Mac computers ahead of its shift to Intel microprocessors. Shares of Apple fell 3 percent in after-hours trading.

Apple's net income in the first fiscal quarter ended in December nearly doubled from a year earlier to $565 million, or 65 cents per share, from $295 million, or 35 cents per share, on a split-adjusted basis.

The stock had gained almost 15 percent since the end of 2005, reflecting the optimism for continued strong demand of its iPod music player.

"They had to do this to reset expectations -- things had gotten a little out of hand. I think that it was the prudent thing to do," said Shaw Wu, analyst at American Technology Research.

For the current quarter, Apple forecast earnings per share before items of 42 cents on revenue of $4.3 billion. Analysts had expected the company to earn a profit before items of 51 cents per share, on average, on revenue of $4.83 billion.

EBay's fourth-quarter results beat analysts' expectations by two cents, but its decision to stand pat with its 2006 outlook for profit of 96 cents to $1.01 a share worried some investors about its future growth prospects.

"I am pretty cautious at this point," said Martin Pyykkonen, analyst at Hoefer & Arnett. "It's not just this quarter, but a belief that the growth at the core online U.S. auction market will decelerate as we go through 2006."

Shares of eBay slid 2.6 percent in after-hours trade.

AMD is bright spot

AMD, the No. 2 maker of microprocessors, posted a 45 percent increase in fourth-quarter revenue from strong sales of chips for PCs and servers, while continuing to grab share from rival Intel.

The company also issued a bullish outlook for its first quarter, saying it expected sales to rise nearly 70 percent from a year earlier.

Hard-disk drive maker Seagate nearly doubled quarterly profit and lifted its full-year earnings outlook on the back of growing demand for notebook computers and consumer electronics.

In after-hours trade, shares of AMD rose 11 percent, while Seagate gained 6 percent.

Investors said the dichotomy between good and bad forecasts underscored the need for tempered expectations and selectivity within the technology sector, a shift that could favor more established names like IBM and Cisco Systems Inc.

"This could be the start of a flight to safety within the sector," said Tom Mahowald, director of equity research at U.S. Bancorp Asset Management.

Mahowald expected strong industrial spending this year to spread to the technology sector, but also favored companies with exposure to mobile phones and other consumer-targeted products.

Others said technology spending will not lift all boats and that is causing some concern.

"People are getting are little antsy," said Kornitzer of the Buffalo Funds. "Spending for technology is going to be very product specific and very choppy."

(Additional reporting by Duncan Martell, Eric Auchard, Phillip Gollner and Scott Hillis in San Francisco)