Happy Pockets

By Reuters -  |  Posted 2008-04-21 Print this article Print

Technology-company earnings have, so far, been holding their own or outperforming. What's to come? 



Pockets of strength, though, include Internet companies and the video games sector, whose companies have yet to report.

"Google's 46 percent revenue growth and eBay's (EBAY.O: Quote, Profile, Research) out-performance on both the top and bottom lines show that the Internet has yet to see adverse effects from the slowing economy," Jefferies & Co analyst Youssef Squali said. "This bodes well for the rest of the group."

Apple Inc (AAPL.O: Quote, Profile, Research) stock rose 9 percent this week, helped by industry data fueling optimism over Macintosh computer sales and rosy forecasts from Mac processor supplier Intel.

Analysts are also growing more confident that Apple will unveil a faster, sleeker iPhone at a company event in June. That should boost sales of the device and help Apple meet its target of selling 10 million units by the end of this year.

Another bright spot is video games, with U.S. sales jumping 57 percent in March, driven by new games and sustained enthusiasm for Nintendo Co Ltd's (7974.OS: Quote, Profile, Research) Wii console.

Industry leader Electronic Arts Inc (ERTS.O: Quote, Profile, Research) is expected to show strong sales of games like "Burnout: Paradise" and "Army of Two" when it reports quarterly earnings early next month.

EA is also bidding $2 billion for Take-Two Interactive Software Inc (TTWO.O: Quote, Profile, Research), whose "Grand Theft Auto 4" is expected to pull in $300 million to $400 million in revenue within a week of its April 29 launch.

Such games drive demand for consoles from Microsoft Corp (MSFT.O: Quote, Profile, Research) and Sony Corp (6758.T: Quote, Profile, Research). Nintendo sold 720,000 Wiis to U.S. consumers in March, better than any non-holiday month.


But the good news may not last. Yet to report are Apple, Microsoft, Yahoo Inc (YHOO.O: Quote, Profile, Research), Hewlett-Packard Co (HPQ.N: Quote, Profile, Research), Dell (DELL.O: Quote, Profile, Research) and Cisco Systems Inc (CSCO.O: Quote, Profile, Research), to name just a few.

"Right now there is a lot of negativity out there," said John Buckingham, chief investment officer of Al Frank Asset Management. "I think the economy is going to remain weak for the next couple of quarters."

Seagate Technology (STX.N: Quote, Profile, Research), the world's largest disk-drive maker, gave a muted current-quarter forecast on Tuesday after it noticed U.S. consumers began cutting back in late March.

"People in the U.S. are being cautious," Seagate Chief Executive Bill Watkins told Reuters in an interview. "Every day they are throwing out the newspaper, there's a recession."

His view was supported by researcher IDC's estimates on Wednesday that U.S. PC unit shipments grew only 3.5 percent in the first quarter, down from 8 percent growth in 2007.

"In my view, there's still going to be some turbulence probably until sometime in the summer or as late as mid-fall," said Jerry Dodson, president and chief investment officer of San Francisco-based Parnassus Investments. "You're still talking about a weak economy for most of the year."

(With reporting by Eric Auchard, Scott Hillis and Philipp Gollner in San Francisco, Jim Finkle in Boston, and Ritsuko Ando and Sinead Carew in New York; Editing by Braden Reddall)


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