Tech executives shake off gloom, predict sunny days ahead

By Daniel Sorid

NEW YORK: The dark cloud that has hung over the technology sector for months showed some signs of lifting on Wednesday after major players in the industry suggested that business had hit bottom and would improve in the second half of the year.

Stocks rallied across the sector, driven primarily by positive comments from No. 1 computer chip maker Intel Corporation, whose products are used in a wide range of electronics, and a surprise rate cut by the Federal Reserve. Intel shares were up more than 20 per cent at $31.44 in late-day trade, helping lift the tech-laden Nasdaq composite index, which was up nearly 9 per cent.

Top software and personal computer makers, as well as battered dot-com companies, also chimed in with hopeful comments, a sharp contrast to the gloom that has been spreading since late last year.

"It certainly feels like a bottom," said Tim Ghriskey, portfolio manager of the $4 billion Dreyfus Fund. "The tone we're hearing from management is just much better, and Intel saying that business at the end of March picked up - and that the pickup is continuing into April - is very positive."

But Wednesday's rally, which lifted shares of many technology companies by double-digit percentages, could simply be a bump in a continuing downturn, as a similar boost in January proved to be. "We were hearing from companies that things were not getting worse," Ghriskey said, "and then all of a sudden in February, right at the beginning, business had dropped off a cliff again."

A strong second half

The shift in the way executives are talking about the future is nevertheless striking. Just a few months after warning that technology spending was slowing abruptly, with no end in sight, Carly Fiorina, chief executive of Hewlett-Packard Co., forecast on Wednesday a flat third quarter with strengthening margins.

Intel, which in March warned that weaker demand for personal computers was spreading to networking, communications and server sectors, on Tuesday made encouraging comments about its largest business segment. "In our microprocessor business, given what we saw happening in March gives us a lot more comfort that we'll have a pretty normal second quarter and a seasonally strong second half of the year," Chief Financial Officer Andy Bryant told Reuters. Investors embraced the news as a key indicator of an upcoming recovery.

"A very influential, knowledgeable company - a company who knows better than anyone else - said we hit bottom," said Brian Salerno, a portfolio manager for the Munder NetNet Fund, which has assets of about $2.5 billion. Salerno said strength among chip makers is good news for pure-play Internet companies such as Yahoo Inc. and CNET Networks, which would reap the benefits of bigger advertising budgets that come with an upturn in the business cycle. Yahoo shares, bouncing back from a low of $11.38 earlier this month, climbed $1.50, or 8.7 per cent, to $18.81.

Fed cuts could unleash spending

Software maker Interwoven Inc., whose products help manage the flow of content on the Web, is also shifting its projections. The company's president, Martin Brauns, told Reuters he expects a downturn in spending on software to bottom out in the second quarter.

Shares of Interwoven Inc., which were down more than 90 per cent from their year high, jumped $4.78, or 42 per cent, to $16.15 on Wednesday. Business software makers are set for growth in the second half as companies spend more on information technology, said analyst Sebastian Thomas of Roger Engemann & Associates, a money manager with $9.8 billion in assets. "Right now there's a spending freeze in place as IT budgets are tied to top line revenue growth for many companies," he said. "With the Fed rate cuts and potential monetary stimulus, things look like they're going to improve from here."

Goldman Sachs analyst Tom Berquist said he expects flat or slightly weaker performance for software companies in the second half of the year, with an upturn in the third quarter. "September will be the same with December, being the first quarter where I anticipate any positive guidance," he said.

Chip-equipment companies have also held steady over the last several months, surging on the days after major drops. Shares of top equipment maker Applied Materials Inc. have rebounded after six significant drops since December and are up nearly 40 percent this year.

The Philadelphia Stock Exchange semiconductor index SOXX has rallied in recent days and is now 45 per cent above its 52-week low. But with the earnings season just kicking off, optimism could easily revert into fear. "Everyone's holding their breath for guidance," Berquist said.

(C) Reuters Limited 2001.