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Forecast on US tech profit growth slashed by half

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CIOL Bureau
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NEW YORK: Wall Street analysts' estimates for fourth-quarter earnings growth in the technology sector have been scaled back by almost half in the past two months, First Call/Thomson Financial said on Friday. Since October 1, earnings growth expectations for the tech sector has dropped from 29 per cent to 14 per cent for fourth quarter 2000, First Call, which tracks brokerage estimates for future corporate earnings, said in a report.



For the first quarter of 2001, earnings growth estimates were cut from 28 per cent to 14 per cent. Many analysts slashed their earnings estimates for PC makers as well as chipmakers following lackluster third quarter earnings reports, and this week, a report of slow holiday sales from personal computer maker Gateway Inc.



Also this week, specialty chipmaker Altera Corporation said its sales would be flat with the third quarter, saying sales were sluggish in November. Analysts cited larger economic and political issues as they cut their views on whole sectors of technology stocks.



"We now think that further substantive cuts on fourth quarter 2000 tech estimates will follow," First Call said. "Earnings estimates for the fourth quarter, the first quarter, and the second quarter continue in free fall." Tech earnings were up 42 per cent in the third quarter, so a fall off to 14 per cent or less in the fourth is a huge decline, the firm said.



"It is even worse in the context of the fourth quarter of 1999 being somewhat soft," the report said. The note pointed out that last year's fourth quarter was slow because many companies slowed their purchases of computer hardware and software ahead of the Year 2000 date changeover.



By comparison, estimates for fourth quarter S&P 500 earnings growth have dropped from 15.6 percent to 10 percent since Oct. 1, First Call said.



The rate of downward revisions may slow soon with fewer earnings reports and with company meetings coming to a halt for the holidays. Also, the builup of preannouncements that would ordinarily come in the last week of the quarter will be pushed back into early January, First Call said.



"The real test will come with the flood of pre-announcements in the first few weeks of January," the note said. "That period will most certainly bring additional downward revisions and give us a good handle on where first quarter earnings growth will end up."



"But whether it brings into any better focus, when and how deep the earnings bottom may be, will be the big question," the note added. "Based on the current estimate revision patterns, the earnings bottom is unlikely to occur before the second quarter 2001, at best."

(C) Reuters Limited 2000.

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