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Earnings Season Confusion
Investors who were hoping to pick up clues on the direction of the economy during second quarter earning season have been inundated with conflicting signals from a host of different companies across the technology sector.
IN PICTURES: Eight Ways To Survive A Market Downturn
Dell Computer (Nasdaq:DELL) led the earnings week off with bad news for technology spending. The company said that weakness still persists in the PC market, with corporations delaying technology spending, and consumers trading down to cheaper models, as well as holding on to their computers for longer.
Before investors could even really digest this gloomy news from Dell, Intel (Nasdaq:INTC) released earnings and knocked the cover off the ball, beating on revenue, non-GAAP earnings and gross margin. This guidance "beat" is only an illusion, of course, as it ignores the $1.45 billion fine that Intel had to pay to the European Union. This positive news, however, gave strength to the bulls that the economy may be heading back up or at a minimum, stabilizing.
The next day, almost on cue, IDC reported that global PC shipments fell only 3% in the quarter, not the 6% that analysts were expecting.
Next up was Nokia (NYSE:NOK), which reported second quarter earnings, and although some may have been enthused by the smaller than expected loss, the company also cut its forecast for profit margins and market share. This conflicting data was rendered even more confusing when Olli-Pekka Kallasvuo, the CEO of Nokia said, "demand in the overall mobile device market appears to be bottoming out."
Another snapshot on the economy and the state of demand was delivered by Sony Ericsson, the joint venture between Sony (NYSE:SNE) and Ericsson (Nasdaq:ERIC). The handset maker competes with Nokia, and the company reported a bundle of bad news for the market. Sony Ericsson said that global handset market would fall 10% in 2009, and that its own market share was down. Shipments of mobile phones in the second quarter were down 43% year over year.
IBM Corp (NYSE:IBM) was the last to report before this article went to press, and the company delighted the market with a large earnings upside surprise, and an increased outlook for the balance of the year.
The bottom line is that we have is many diverse technology companies, reporting somewhat conflicting and confusing views. It's only going to get worse over the next week as many other large companies at the crossroads of the global economy are expected to release earnings. Investors should get ready for more confusion and volatility in their investment portfolios. (For more, check out Strategies For Quarterly Earnings Season.)
IN PICTURES: Eight Ways To Survive A Market Downturn
Dell Computer (Nasdaq:DELL) led the earnings week off with bad news for technology spending. The company said that weakness still persists in the PC market, with corporations delaying technology spending, and consumers trading down to cheaper models, as well as holding on to their computers for longer.
Before investors could even really digest this gloomy news from Dell, Intel (Nasdaq:INTC) released earnings and knocked the cover off the ball, beating on revenue, non-GAAP earnings and gross margin. This guidance "beat" is only an illusion, of course, as it ignores the $1.45 billion fine that Intel had to pay to the European Union. This positive news, however, gave strength to the bulls that the economy may be heading back up or at a minimum, stabilizing.
The next day, almost on cue, IDC reported that global PC shipments fell only 3% in the quarter, not the 6% that analysts were expecting.
Another snapshot on the economy and the state of demand was delivered by Sony Ericsson, the joint venture between Sony (NYSE:SNE) and Ericsson (Nasdaq:ERIC). The handset maker competes with Nokia, and the company reported a bundle of bad news for the market. Sony Ericsson said that global handset market would fall 10% in 2009, and that its own market share was down. Shipments of mobile phones in the second quarter were down 43% year over year.
IBM Corp (NYSE:IBM) was the last to report before this article went to press, and the company delighted the market with a large earnings upside surprise, and an increased outlook for the balance of the year.
The bottom line is that we have is many diverse technology companies, reporting somewhat conflicting and confusing views. It's only going to get worse over the next week as many other large companies at the crossroads of the global economy are expected to release earnings. Investors should get ready for more confusion and volatility in their investment portfolios. (For more, check out Strategies For Quarterly Earnings Season.)
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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