Big Tech should keep profit growth but economy a risk

SAN FRANCISCO, USA: Major technology companies should manage to keep up sales and profit growth in 2011, but economic troubles in the United States and Europe could temper results.

Intel Corp and other sector heavyweights are expected to keep expanding, albeit at a slower pace than in 2010, when the industry enjoyed a rebound following the U.S. recession.

Heavy suppliers of tech to U.S. corporations, such as Oracle Corp, should enjoy a resurgence of corporate spending in the first half, while select consumer-centric companies should also do well.

Apple is expected to sell 60 million of its iPhones this year and rival Google is also likely to post sharply higher results as devices that use its software gain ground.

But the U.S. economy remains shaky with unemployment stubbornly near 10 percent. Europe, a major market but recent source of weakness for the likes of network equipment giant Cisco Systems Inc, has been shaken by sovereign debt crises and austerity measures.

"As these tech companies get more global, investors need to pay much more attention to what's happening overseas," said Channing Smith, a portfolio manager at Capital Advisors. "Watch the economy and be aware there could be a slowdown."

Intel, which kicks off the earnings season on Thursday, could report an 8 percent in revenue for the final quarter of 2010 over the year-ago period and a rise of 4 percent in the first quarter, according to Thomson Reuters I/B/E/S.

Intel unveiled its next-generation PC microchips last week, and Chief Executive Paul Otellini said computer manufacturers are rapidly adopting them, shoring up 2011.

Still, Intel was largely sidelined at the Consumer Electronics Show in Las Vegas as technophiles focused on tablets and smartphones, a market it has been unable to break into. Its shares fell nearly 2 percent during the week.

LESS RELEVANT?

Compounding Intel's challenges, long-time ally Microsoft Corp said it would make its Windows operating system compatible with less expensive chips made by Britain's ARM, an Intel rival.

Technology companies in the S&P 500 Index likely averaged 13 percent more revenue year over year in the December quarter and could have 10 percent higher sales in the first quarter, according to analysts surveyed by Thomson Reuters.

Their fourth-quarter profits likely have risen 13 percent over the year-ago quarter and may increase at a similar rate in the first quarter of 2011, according to analysts.

Suppliers of technology to businesses could do especially well in the first quarter as U.S. companies that held back outlays on new servers and software last year rush to spend budgets.

"That would have an immediate impact from catch-up spending. IT departments have been starved for budget dollars and will likely spend them quickly," said Tim Ghriskey, chief investment officer at Solaris Asset Management in New York.

Oracle, run by Silicon Valley tycoon Larry Ellison, is seen posting a 34 percent year-over-year leap in revenue in its quarter ending February as a strategy of offering a one-stop shop for enterprise software and hardware pays off.

But globally, technology spending overall is expected to grow only 5.1 percent through the year, unchanged from 2010, according to research firm Gartner.

In Europe, concerns about Portugal's finances and economy have raised fears the region's debt crisis could spread.

And consumers remain cautious. U.S. household incomes have fallen since the recession and efforts by Americans to pay down household debt constrain their ability to shop as often as they once did.

Cisco in November warned its quarter ending in January would be weak because of weakness in Europe, but its sales are expected to recover through 2011.

"We don't think the business model is impaired. They simply saw a slowing in the quarter and are taking the right actions to keep growth on track and buy back stock," said portfolio manager Michael Shinnick of Wasatch Advisors in Indiana.

Some though will shine. Apple's revenues may rise 50 percent year over year in the first quarter of 2011, according to analysts, as its iPad continues to take off, with an expected 20 million in unit sales during the year.

Google's revenues are expected to expand 20 percent in the first quarter of 2011. The Mountain View, California company gives its Android operating system to manufacturers for free and is making increasing amounts of money through mobile advertising.