Strong earnings may boost tech sector

Strong results from a clutch of research heavyweights, led by top global chip maker Intel and "cloud computing" specialist VMware, may give the battered tech sector a boost.

IBM as well blew past Wall Street targets, raising its profit forecast and citing strong sales of mainframe computers and brisk business in emerging markets.Those results set a brighter tone for a bedraggled tech sector than recent analysis might have recommended. On the whole to report are heavyweights, from Cisco Systems and Apple to Hewlett-Packard.Concerns that the growing popularity of Apple's iPad is hurting personal computer sales, as then as the disruption to the global supply chain from Japan's earthquake, had walloped bellwether tech stocks in recent weeks."Expectations for this quarter - in spite of the fact there were no pronouncements - were low. There were concerns about semiconductor inventories, the decline in PC shipments or the competition from the iPad on PC shipments," said Tim Ghriskey, chief investment officer at Solaris Asset Management."The futures are pointing to a stronger opening and that is as a matter of fact as a result of the strong revenues primarily from innovation companies we saw afterwards the close," he said.Fund managers have sold down sector bellwethers since Japan's March 11th disaster, fearing worse-than-expected damage to margins as they battle to secure critical elements from a country that supplies 14 per cent of the world's electronics.Nevertheless with Intel's revenue forecasts for this quarter shattering expectations and defying fears of a slowdown in global PC sales, relieved investors piled back into the chipmaker's shares and other possibly oversold stocks.Even though some say the PC market looks better afterwards Intel's report, the jury is in spite of everything out on its longer term prospects. And Intel remains far behind Britain's ARM Holdings in designing mobile processors."Everybody, including myself, was overly pessimistic in the nearly term," said Roth Capital Partners analyst Arnab Chanda. "Yet the issues are nevertheless not resolved unless they tell us, 'Hey, we got four design wins on Tier 1 handsets.'"VMware, which specialises in helping corporations set up virtual computer hardware and software networks, as well surprised Wall Street with evidence of a surge in corporations upgrading equipment as they emerged from recession.VMware surged 10 per cent and Intel climbed 4 per cent. Nevertheless IBM held steady as some investors had hoped for IBM to raise its full-year forecasts moreover than they did.Intel yesterday said third-party forecasters - just as Gartner - might have failed to take emerging markets' astonishing growth into account. Other analysts said the gradual shift of manufacturing toward less-visible China from Taiwan and Japan might have clouded the picture somewhat.Concerns that iPad tablets are squeezing sales of PCs have hung over Intel. Computer sales in the first quarter fell for the first time since 2009 as the iPad attracted buyers in droves and Japan focused on recovering from the earthquake and tsunami, according to innovation firm Gartner.Intel's stock has shed about 12 per cent of its value since the first iPad hit store shelves in April last year, during the Standard & Poor's 500 Index has gained 11 per cent. With its shares trading at about 9.5 times expected annual revenues, some analysts say Intel has become a bargain in spite of its problems."I on the whole think shares look undervalued," said Ralph Shive, portfolio manager for the $1.7 billion Indiana-based Wasatch-1st Watch Income Equity Fund."Everyone was saying that their margins couldn't hold up, that they don't have enough exposure to tablets, yet the sales look strong and they're talking about filling in some of the product holes they have."VMware, one of the leading companies in the shift toward so-called cloud computing, or online access to data and computing power, beat Wall Street revenues estimates for the first quarter and indicated its margins would grow this year.Shares of VMware, which vies with Microsoft and Oracle in the fast-growing field of computer virtualisation, doubled in value last year, nevertheless came down to earth three months ago as VMware said it would focus on internal investments in 2011.Some argue that major players just as Dell, Cisco and Hewlett-Packard present attractive bargains in spite of uncertainty about how much the sector will be affected by Japan over the straightway few months.Intel, HP, Dell and Microsoft had traded around 10 times forward earnings versus the market's 13.5 average. All have underperformed the market in past weeks.Even Apple - hurt by a rebalancing of the Nasdaq 100 and fears of supply hiccups for elements like memory chips and touchscreen glass - now trades at 13 times forward earnings. Analysts say the company - which reports earnings today - remains a bargain despite gaining about 37 per cent over the past 12 months. Apple has the highest projected earnings growth among major tech stocks but is even so valued lower than Google Inc.Reuters