More Lights Flashing in Technology


By Will Andrews After a summer slump, technology investors breathed a little easier in September. Whether it was relief that the Athens Olympics and U.S. political conventions went off without major incident in August, or, dare we say it, improving sentiment toward the sector, the major tech benchmarks were able post modest gains for the month: 3.2% for the Nasdaq composite index, 3.6% for the Philadelphia Semiconductor Index (SOXX), and 3.1% for the S&P 1500 Info Tech index.

The partial tech thaw was reflected in the performance of stocks in BusinessWeek's IT 100. -- our list of the world's top-performing IT companies. Some 53 names on the list were in positive territory, year-to-date through Sept. 30, compared with 46 at the end of the previous month. (See the full list of year-to-date performance.)

EYE-POPPING ADVANCES. The month didn't start on a promising note: On Sept. 1, giant chipmaker and IT 100 member Intel (INTC) lowered its revenue forecast for the third quarter, citing weaker demand. It also expected to post a narrower gross margin. The shares sank on the news and dragged tech indexes lower as hopes began to fade that the sector could return to double-digit growth rates.

But things got better from there. With tech shares so far down, investors seemed to think it was time for some bargain hunting. That's especially true of the beleaguered chip group, with the Philly SOXX smarting from an 11% plunge in August. Many expect that the worst may be over for chipmakers and that the group's results will be solid in the fourth quarter, typically the industry's strongest season. But hopeful investors may not wish to get ahead of themselves.

Some tech outfits did offer positive outlooks in September. On Sept. 9, Finnish cell-phone giant Nokia (NOK) raised its outlook for third-quarter sales and profits, thanks to strong demand for mobile phones. On the same day, chipmaker National Semiconductor (NSM) posted quarterly earnings that topped expectations. (Alas, one step forward, two steps back: National Semi also warned that second-quarter sales would fall as much as 10% from first-quarter levels.) And on Sept. 14, IT 100 member Oracle (ORCL) reported fiscal-quarter profit that just topped analysts' expectations.

Still, many IT 100 stocks have posted eye-popping gains for the year. Here's a look at the top 10 performers thus far in 2004, through Sept. 30:

IT 100 Leaders

STOCK NAME

TICKER

IT 100 RANK (5/30/04)

% CHANGE FOR SEPT.

% CHANGE YTD

Autodesk

ADSK

38

9.5

97.8

Apple Computer

AAPL

74

12.4

81.3

Mobile Telesystems

MBT

7

12.1

75.1

NII Holdings

NIHD

26

12.4

65.7

Symantec

SYMC

61

14.4

59.1

Softbank

67

9.2

55.8

Yahoo!

YHOO

63

18.9

50.6

VimpelCom

VIP

18

10.9

48.0

Rogers Wireless Communications

RCN

75

4.8

46.8

Alliance Data Systems

ADS

99

6.2

46.5

Success seemed to breed success for the inhabitants of the IT 100's upper crust. The leaderboard for September looks fairly similar to the prior month's edition, with Autodesk (ADSK) padding its top ranking with a 9.5% increase for the month. Apple (AAPL) solidified its No. 2 standing with a 12% rise as it rode the success of its iPod and G5 iMac products. Symantec (SYMC), another well-known holdover, added 14% on the month.

EXPANDED CAPACITY. The newest entrant to the top tier comes by way of Russia. VimpelCom (VIP), a rapidly growing provider of wireless telecom service in that country, jumped 11% on the month. In a research note issued in late August, S&P equity analyst Ari Bensinger noted that VimpelCom's net subscribers rose nearly 3 million in its second quarter, to 16.3 million, above his estimate of 15.5 million -- despite a numbering-capacity shortage that slowed subscriber growth in Moscow. However, the Russian Communications Ministry has granted VimpelCom additional phone numbers.

Another non-U.S. member of the upper echelon, Canada's Rogers Wireless (RCN), moved 4.8% higher on the month. Its parent company, Rogers Communications, agreed to acquire the 48.6 million shares of Rogers Wireless held by AT&T Wireless for $36.37 cash per share.

Enough about the winners. What about the bottom rung of the IT 100? Here are the 10 worst performers, year-to-date through Sept. 30:

IT 100 LAGGARDS

STOCK NAME

TICKER

IT 100 RANK (5/30/04)

% CHANGE FOR SEPT.

% CHANGE YTD

Western Digital

WDC

73

17.8

-25.4

NTT DoCoMo

DCM

33

-9.1

-25.8

United Microelectronics

UMC

96

-11.1

-26.2

Texas Instruments

TXN

39

8.9

-27.6

Tele2

TLTOB

93

-1.3

-28.4

Advanced Semi. Eng.

ASX

85

-7.2

-29.7

Unisys

UIS

82

2.8

-30.5

Intel

INTC

13

-5.8

-37.4

Lexar Media

LEXR

57

46.2

-51.8

UTStarcom

UTSI

58

4.1

-56.5

The lower depths contain some familiar faces from previous months, though storage outfits Lexar Media (LEXR) and Western Digital (WDC) were able to post substantial gains on the month.

WORST IS OVER. Meanwhile, two major chip names in the list of laggards had divergent fortunes in September. We've already spoken of Intel's woes, and the stock paid for them with a 5.8% drop in September. But Texas Instruments (TXN) shares posted an 8.9% rise, even though the outfit lowered its third-quarter revenue guidance on Sept. 9.

Why? Apparently, some Wall Streeters think the worst may be behind TI. CS First Boston analyst Michael Masdea, who rates the shares outperform, thinks that given its attractive valuation, strong product cycles, and high barriers to entry, TI will fare better than the industry in 2005.

What's ahead for IT 100 companies in October? The earnings calendar is packed. Here are some of the IT 100 names expected to report results during the month:

IT 100 EARNINGS RELEASES -- OCTOBER, 2004

Company

Ticker

Quarter

Sched. Rel. Date

Advanced Micro Devices

AMD

Q3 2004

7-Oct

Infosys Technologies

INFY

Q2 2005

11-Oct

Yahoo!

YHOO

Q3 2004

12-Oct

Accenture

ACN

Q4 2004

13-Oct

Apple Computer

AAPL

Q4 2004

13-Oct

First Data

FDC

Q3 2004

14-Oct

Lexar

LEXR

Q3 2004

14-Oct

Unisys

UIS

Q3 2004

14-Oct

Samsung Electronics

Q3 2004

15-Oct

International Business Machines

IBM

Q3 2004

18-Oct

Lexmark International

LXK

Q3 2004

18-Oct

Texas Instruments

TXN

Q3 2004

18-Oct

Ameritrade Holding

AMTD

Q4 2004

19-Oct

CDW Computer

CDWC

Q3 2004

19-Oct

Motorola

MOT

Q3 2004

19-Oct

eBay

EBAY

Q3 2004

20-Oct

Affiliated Computer Services

ACS

Q1 2005

21-Oct

Nextel Communications

NXTL

Q3 2004

22-Oct

Western Digital

WDC

Q1 2005

25-Oct

United Microelectronics

UMC

Q3 2004

27-Oct

Advanced Semi. Eng.

ASX

Q3 2004

28-Oct

Will October contain more pleasant surprises for tech investors? The earnings season will tell. Maybe this time, the only frights for tech investors will be the ghosts and goblins looking for free candy at month's end. Data compiled by John Cady

Andrews is managing editor of BusinessWeek Online's Investing channel


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