Second-quarter profit at US computer-related companies tumbled about 66 percent because these businesses couldn't make up demand lost when the Internet boom finally crashed, First Call/Thomson Financial said.
Intel Corp, the biggest chipmaker, said second-quarter profit fell 94 percent on a slump in personal-computer sales. Sun Microsystems Inc had a loss last quarter on its first sales decline in at least nine years. JDS Uniphase Corp, the largest maker of fiber-optics equipment, issued results that made a full-year loss of US$50.6 billion, the largest in US history.
Producers of computers, software, chips and communications equipment took a double hit in the period. They suffered as most businesses did, because companies and consumers cut spending. Yet, they're also stuck with extra capacity after spending heavily to meet demand that vanished when the dotcom bubble burst.
"It was a brutal quarter," said Todd Ahlsten, research head at Parnassus Investments, which manages about US$475 million. "The third quarter is going to be even worse, and fourth-quarter estimates are still too optimistic." First Call gave its projected per-share fall in computer-related profit after almost 80 percent of US companies in the Standard & Poor's 500 index had released second-quarter results.
The computer industry's problems likely pulled down overall second-quarter US corporate profit by 17 percent, said Joe Cooper, a First Call analyst.
While corporate profit declined, the economy didn't start to shrink last quarter. The US government said Friday that the economy grew in the period, though at a less-than-forecast 0.7 percent annualized rate.
That may be about as bad as things will get, some investors said. They expect that sales will pick up in the next quarter or so, after the government moved to stimulate demand beginning in January.
* Intel said second-quarter profit fell 94 percent on the recent slump in PC sales.
* JDS Uniphase is likely to see a loss of US$50.6 billion for the year.
* Profit in the second quarter for US-based companies in computer-related businesses fell some 66 percent.
US Federal Reserve interest-rate cuts -- six this year so far -- generally take about six months to a year to penetrate the economy deeply enough to help corporate profits, investors said.
They expect tax rebates from Washington to boost spending as well.
"Economies do respond to monetary stimulation like the kind we've seen for the past 10 months," said James Grefenstette, a money manager at Federated Investors Inc. "This time won't be different than what we've seen for the past few decades. Economies around the world will respond."
Still, analysts have slashed earnings forecasts during the past month.
The average forecasts now call for computer-industry profits to plunge 63 percent in the third quarter. A 49 percent decline was predicted July 1, according to First Call surveys.
Overall US corporate profit, as tracked by First Call earnings estimates for companies in the S&P 500, now is expected to drop about 12 percent in the current period, compared with the 6 percent average decline forecast July 1.
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