Tech recovery seen more elusive than hoped for

Nicole Volpe

NEW YORK: A profit warning from mobile phone giant Nokia early this week
darkened the mood at a big summer technology conference here, leaving a cloud
over presentations from technology leaders who now see a recovery as several
months off - if not sometime next year.

That was a shift from the guarded optimism that companies had begun to air
during the past month or two, as they routinely set their hopes on better
results in the second half of 2001. "Clearly it is our view that it is
murkier than it was a couple of months ago," Hewlett-Packard chief
financial officer Bob Wayman said in an interview after a presentation at the
Bear Stearns technology conference here.

The hope had been for a quick bounce-back for technology stock after a few
months of steep declines, in what Wall Street calls a V-shaped recovery. The
feeling of most executives and investors this week was that technology stocks
could trade sideways for a while, and only recover at some point further in the
future, in what is known as a U-shaped recovery.

Now there are even doubts about that slower recovery. "There's still no
visibility," said Bear Stearns semiconductor equipment analyst Robert Maire.
"No one's willing to go out on a limb now to commit to a recovery in Q3 or
Q4." "Now I hear people talking about an L-shaped recovery," he
added, referring to a market with no rebound in sight.

Early this month the Nasdaq Composite Index made modest gains amid growing
hopes the worst is over the the battered high-tech sector. But the Nasdaq market
was headed for its fifth straight session of decline on Thursday. After the
Nokia warning, executives at rival cell phone makers Motorola Inc. and Ericsson
declined to comment on their own results at the conference.

Some executives have given up entirely on trying to determine when an upswing
might occur. "I'll believe it when I see it in our revenue numbers,"
said Ken Lonchar, chief financial officer at storage management software company
Veritas Software Corp.

No news is good news

The best news was no news at all at the Bear Stearns conference, which was held
in the thick of what this year has come to be called "warnings season"
- the time when companies issue cautions about their upcoming earnings reports.

Investors are avidly seeking any indications of a turnaround in technology
going into the second half of the year or at least signs that things aren't
getting worse. The stock of EMC, the No.1 data storage company, traded up early
on Wednesday, largely because its chairman did not issue a warning on its second
quarter during a scheduled speech.

"Some on the Street were expecting it to preannounce and the lack of an
announcement is helping the stock trade up," Bear Stearns analyst Andrew
Neff wrote in a note to clients. EMC shares later gave up those gains. Texas
Instruments reiterated its second quarter outlook in a speech at the conference
on Wednesday afternoon, sending the stock up briefly in after hours trading,
before heading lower on Thursday on analyst downgrades.

"Things have not improved during the quarter," Texas Instruments
Chief Operating Officer Rich Templeton told investors.

Investors, still missing the go-go days of the technology boom, had been
snapping up shares to get in early on the next upswing. But they could give up
on technology by year end, something that they have so far been reluctant to do,
said Paul Wick, managing director at J.W. Seligman.

"Individual investors are rear-view mirror investors," he said.
"At the end of this year, they'll look at their statements and they'll say
'XYZ tech fund is down 30 per cent two years in a row. Why am i doing
this?" "As what happened with value funds in the mid-to late-90s, we
could see the same thing in aggressive growth, where they just throw in the
towel," he added.

Hope for the fourth quarter

Some fund managers still held out for a glimmer of optimism in the fourth
quarter. "On a seasonal basis, I don't think people can ignore the fourth
quarter and what could happen at that point, said Robert Turner, chief financial
adviser at Turner Investment Partners, pointing to corporate spending on
computers, which may strenthen towards the end of the year.

"These companies have their budgets and the way it works is if they are
going to be able to make the numbers that are out there they are definitely
going to spend their budgets," he said. "And so the fourth quarter,
compared to a year ago, could lok good. And compared to the third quarter it
could look really good."

Kevin Rollins, chief operating officer at No. 1 personal computer maker Dell
Computer Corp. , said he sees no signs of a recovery until the fourth quarter.
"At this point in Q2, we don't see any major uptick, and don't believe,
frankly, we'll see it in Q3 either," he said in his presentation at the
conference.

"Q4 is the first opportunity that we see for some improvement in both
the macroeconomic environment and the IT purchasing market," he added,
referring to corporate buying of computer systems. The telecommunication
industry's capital spending slowdown has been understated, Michael Birck,
chairman of telecom equipment maker Tellabs Inc., said on Thursday in Chicago.

"I think (spending) is more dramatically down this year than is being
reported," he told Reuters after speaking to some software industry
officials in Chicago. "Maybe they'll spend like drunken sailors at the end
of the year, but they aren't doing it up until then."

(C) Reuters Limited 2001.