News from some technology bellwether companies, coupled with positive macroeconomic signs, are giving IT vendors and investors heart that the next quarter or so will be better than what was expected several months ago. One piece of good news is that a slowdown in PC buying this year and a resulting PC price war may not be affecting chip and PC manufacturers as badly as forecast. There are bound to be some losers this year, but the bad news is not affecting vendors across the board. For example, Citigroup Inc., heartened by Hewlett-Packard Co.'s earnings report Wednesday, raised its rating on the company to "buy" from "hold." Mainly as a result of strong PC sales, the company reported a profit, excluding one-time charges, of $1.7 billion or $0.52 per share. Analysts polled by Thomson Financial had expected earnings per share of $0.47. Clearly, HP, under Chief Executive Officer Mark Hurd, is achieving the sort of lean supply-chain logistics that led to Dell Inc.'s phenomenal growth in the 90s. Now, HP's growth forecast, in terms of percent of overall revenue, is only slightly below Dell's forecast -- a great sign for a company that is much bigger than Dell. HP (ticker symbol HPQ) rose Thursday by $0.72 to close at $35.15. As expected, Dell Thursday reported a dismal second quarter, with net income of $502 million, compared with $1.02 billion in 2005. In after-hours trading, company shares (DELL) immediately began to slump, sliding $0.96 in the first half hour, to $21.84. The main problem is that competitors have managed to replicate its once-vaunted edge in logistics. As it reduces prices to compete, its profit margins are cut to the bone. But other companies that earlier this year were deemed to be in trouble, are now looking good to some analysts. Brokerage Cowen & Co., for example, gave Intel Corp. an "outperform" rating this week, saying that shares could rise 10 percent to 30 percent compared to the overall market this year. Intel's new products, mainly its new dual-core processors, are a comeback to Advanced Micro Devices Inc.'s encroachment over the past year. However, Intel's gain was not AMD's loss. Citigroup upgraded AMD to "buy" from "hold," saying that the PC market does not seem to be as soft as had been feared, and that Dell, despite its problems, would be buying more chips from AMD. Shares of AMD (AMD) soared by $1.63 to close at $24.20 Thursday. News about these tech bellwethers is being bolstered by macroeconomic issues. On the geopolitical front, investors were heartened last week that news of the foiled U.K. terrorists did not seem to affect markets, a sign of general confidence. A lot of this is due to general economic news. The July consumer price index report for the U.S. showed prices climbing slower than forecast. The U.S. Federal Reserve is holding off on raising interest rates, a sign that bankers are not so worried about inflation. The cumulative effect of all this suggests that IT users will have more money to spend on technology products. Over the last few weeks the tech-heavy Nasdaq has started climbing out of the trough it went into in July. Wednesday, the Nasdaq Composite Index closed on its biggest two-day jump since 2003. It may still be the dog days in the northern hemisphere, but IT investors appear to be getting some sort of relief. Source PCWELT English News 08.18.2006
