No Heat for the IT 100 in August


By William Andrews

The cruel summer of 2004 for tech investors -- and for BusinessWeek's Info Tech 100 -- continued in August. With market and media attention squarely focused on search king Google's (GOOG) debut as a public company, much of the rest of the sector suffered in quiet despair. Amid dull seasonal trading conditions in the equity markets, key tech benchmarks posted further declines in August: 2.6% for the Nasdaq composite index, 11% for the Philly Sox index, and 5.3% for the S&P 1500 Info Tech index.

What's bothering tech investors? It's hard to know where to start. On a macro level, concerns center on the economy, the closely contested U.S. Presidential campaign, terrorism, Iraq instability, oil prices, Fed policy, you name it. These factors have undermined investor confidence in the overall stock market, and the tech sector hasn't been immune.

On the industry level, a lowered outlook from IT 100 member Cisco Systems (CSCO) on Aug. 11 sent analysts scurrying to lower their estimates -- and investment opinions -- on the networking-gear maker and other leading tech names. The announcement prompted S&P equity analyst Megan Graham-Hackett to lower her ratings

not only for Cisco, but for tech stalwarts and IT 100 members Dell (DELL), Hewlett-Packard (HPQ), and IBM (IBM) as well.

But some hopeful signs are evident for the sector. Chip sales, while short of analyst expectations, remain robustly higher, year-over-year. A recovery in the broader economy could eventually translate into improved orders for tech offerings. And a new array of tech products could spark improved demand in 2005.

But in the here and now, stocks in the BusinessWeek's IT 100 companies continue to feel the chill from the tech slump. (The original list was published in BusinessWeek's annual IT 100 Special Report, based on data as of May 30, 2004.) Some 46 names on the list were in positive territory through Aug. 31, compared with 47 at the end of the previous month. (See the full list for year-to-date performance.)

Still, many IT 100 stocks remain solidly higher for the year. Here's a look at the top 10 performers thus far in 2004, through Aug. 31:

IT 100 LEADERS

STOCK

TICKER

IT 100 RANK (5/30/04)

% CHANGE FOR AUG.

% CHANGE YTD

Autodesk

ADSK

38

10.5

80.7

Apple Computer

AAPL

74

6.6

61.4

Mobile Telesystems

MBT

7

10.5

56.2

NII Holdings

NIHD

26

-3.6

47.3

Yahoo! Japan

jp;4689

31

18.8

45.8

Softbank

jp;9984

67

19.4

42.7

Qualcomm

QCOM

60

10.0

41.1

Rogers Wireless Communications

RCN

75

2.3

40.0

Symantec

SYMC

61

2.6

39.0

Alliance Data Systems

ADS

99

-3.8

38.0

Autodesk kept its grip on the top spot in August after posting better-than-expected quarterly earnings on Aug. 20, thanks to a 32% jump in sales, as it made additional inroads into the 3D product market and reported strong adoption for its recently upgraded AutoCAD products. Another holdover, Apple, got a boost at month-end from the release of its newest iMac desktop computer, powered by its speedy G5 processor.

Internet security outfit Symantec remained among the IT 100 leaders despite its announcement that a calculation error would result in $20 million of revenue from the June-quarter being deferred rather than recognized in the quarter. Nevertheless, S&P equity analyst Jonathan Rudy believes that Symantec's core Internet security business remains strong and that the shares are attractive at a discount to Symantec's peers on a p-e-to-growth basis.

Of course, the IT 100 is by definition global in scope. A glance at the above table shows names like Japan's Softbank and Yahoo Japan, and Canada's Rogers Wireless (RCN), holding their own among the current leaders.

What about the IT 100's rear echelon? Here are the 10 worst performers, year-to-date:

IT 100 LAGGARDS

STOCK

TICKER

IT 100 RANK (5/30/04)

% CHANGE FOR AUG.

% CHANGE YTD

Lexar Media

LEXR

57

6.5

-67.0

UTStarcom

UTSI

58

-15.2

-58.3

Western Digital

WDC

73

6.4

-36.7

Intel

INTC

13

-12.7

-33.6

Texas Instruments

TXN

39

-8.4

-33.5

Unisys

UIS

82

-2.0

-32.4

Tele2

TLTOB

93

-3.8

-27.5

Jabil Circuit

JBL

69

-5.1

-27.1

Compal Electronic

15

1.8

-25.8

Oracle

ORCL

34

-5.1

-24.6

The list features some familiar faces from previous months -- with flash-memory outfit Lexar continuing to hold down the top (or is that bottom?) spot. But it features one noteworthy new name: Intel (INTC). While the semiconductor giant has been dogged for months by worries about slowing demand for its chips, and by several quarters of shrinking margins, things really began going south in late August as investors sold shares ahead of Intel's mid-quarter update on Sept. 2. That report confirmed the Street's worst fears, as Intel lowered its sales, profit, and gross margin guidance for the full year.

Another new dweller of the lower depths is Jabil Circuit (JBL). S&P equity analyst Richard Stice cut his rating on the shares to hold, from accumulate, on Aug. 11 after taking a more cautious stance on Jabil following what he saw as a lackluster near-term outlook

from Cisco, Jabil's largest customer in fiscal 2003.

What's ahead for IT 100 companies in September? The earnings calendar contains just a few names: Oracle (ORCL) on Sept. 14, Adobe Systems (ADBE) on Sept. 20, and Jabil Circuit on Sept. 21.

Investors may also be able to get a read on business conditions for key IT 100 names by listening to Webcasts of presentations by Cisco Systems, Motorola (MOT), and Scientific-Atlanta (SFA) at the Smith Barney Citigroup Technology Conference on Sept. 8. Data compiled by Frederick Katzenberg in New York

Andrews is managing editor of BusinessWeek Online's Investing channel


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