Pundits stay bullish on US technology

Cross your fingers and hope for the best. That's how Wall Street technology analysts are making forecasts for next year's profits, some investors say.

By keeping their 2002 profit estimates largely intact while slashing this year's numbers, the analysts have ended up boosting their prediction for year-to-year growth. Analysts now call for a 50 percent increase in earnings in 2002 for the 82 companies in the Standard & Poor's Technology Index, according to First Call/Thomson Financial.

That forecast is up from 39 percent a month ago and 31 percent two months ago, showing rising optimism about technology companies at a time when investors and strategists have seen few signs of recovery.

"The song and dance in the technology sector, when there are disappointments, has always been: `It'll be better next year,'" said Alan Skrainka, chief market strategist at Edward Jones in St. Louis.

"Analysts by and large have been chronically too optimistic."

For this week, at least, investors were swayed by concern that profit-growth expectations are still too high in technology.

Computer, semiconductor and phone equipment stocks fell, leading the NASDAQ Composite Index to its first losing week in three, while energy and health-care shares boosted the Dow Jones Industrial Average.

Stocks tend to rise when expectations are low and improving, Skrainka said. They tend to fall when expectations are too high.

"Last year, expectations for growth were off the charts," Skrainka said. As stocks plummeted on profit disappointments, the NASDAQ fell 39 percent last year, the most in its history.

In October, 2001 profit-growth forecasts for S&P technology companies peaked at 24 percent, First Call said. Analysts now call for profits to fall 36 percent this year.

"My concern is the bar has already been set too high" for technology stocks in 2002, repeating last year's mistake, Skrainka said.

Pip Coburn, chief technology strategist at UBS Warburg, said a small group of money managers he surveyed recently expects just 20 percent profit growth for technology companies in 2002.

"There's a lot of frustration among money managers that these 2002 numbers are still so high," Coburn said.

"Over the next month and a half the pressure is going to really be on analysts to go back and review their numbers," he said.

If the profit-growth forecast remains high, "it's going to hang out there as another shoe to drop," leaving investors uneasy, Coburn said.

The NASDAQ fell 4.1 percent last week. It is down 16 percent this year and 59 percent from its peak in March 2000.

JDS Uniphase Corp, the biggest maker of parts used in fiber-optic networks, fell 32 percent, leading the NASDAQ's decline. The company for a second time reduced its sales and profit forecasts for the quarter ending in June and said it would close some plants to adjust to lower demand.

While analysts cut their 2001 profit forecasts for JDS Uniphase, they actually boosted their estimates for 2002, First Call said. They now predict that JDS Uniphase will post a 117 percent increase in profits, to US$0.78 a share in 2002 from US$0.36 this year. Previously, the forecast was for a 43 percent rise to US$0.76 from US$0.53.

"Analysts are hesitant to trim their 2002 estimates," said Joe Cooper, a research analyst at First Call in Boston.

Other companies that cut sales or profit forecasts this week included Applied Micro Circuits Corp, a maker of chips used in networking equipment, and BMC Software Inc, a maker of software to manage corporate computer systems. Applied Micro shares fell 24 percent and BMC dropped 18 percent.