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Street Talk: Two techs
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December 15, 2000: 9:55 a.m. ET
Oracle wins, Microsoft loses and drags down EMC, Sun; Red Hat benefits
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NEW YORK (CNNfn) - Friday saw a tale of two technology companies, Oracle and Microsoft, who inspired very different analyst reactions with their corporate earnings.
Oracle got a positive reaction after actually beating Wall Street estimates in its most recent quarter, while Microsoft started a chain reaction among analysts, who cut other big technology names and raised one of Microsoft's biggest competitors in the operating-system market.
Credit Suiss First Boston raised its earnings estimates on Oracle (ORCL: Research, Estimates) after the world's No. 2 software maker posted second-quarter earnings Thursday that beat Wall Street estimates, helped by stronger-than-expected sales of its business-management software.
CSFB raised its 2001 earnings-per-share estimate to 51 cents from 48 cents and its 2002 estimate to 63 cents from 57 cents.
SG Cowen raised its 2001 estimate for Oracle to 51 cents from 48 cents and its 2002 outlook to 64 cents from 60 cents.
Microsoft
Goldman Sachs cut earnings estimates for Microsoft (MSFT: Research, Estimates) after the software maker warned of lower results tied to weakness in both consumer and corporate spending.
Goldman Sachs cut its 2001 earnings-per-share forecast to $1.80 from $1.88.
Merrill Lynch raised its risk rating on Microsoft to "above-average risk" from "low risk" and set a price target on Microsoft shares of $61.
Merrill also cut its fiscal second-quarter earnings forecast to 46 cents a share from 49 cents and its 2001 estimate to $1.82 from $1.90.
"We believe this shortfall was widely anticipated and should mute a sharp sell off," Merrill said in a research note.
"We remain cautiously optimistic on Microsoft as the company slowly transitions from its reliance on desktop software and continues to roll out its higher growth, server side software," Merrill said.
SG Cowen cut its 2001 earnings estimate for Microsoft to $1.66 a share from $1.74 and its 2002 estimate to $1.94 from $2.04.
SG Cowen said it didn't expect Microsoft to begin to recover until it released new products in 2002.
EMC, Sun
Bear Stearns analyst Andy Neff cut his ratings to "attractive" from "buy" on EMC (EMC: Research, Estimates) and Sun Microsystems (SUNW: Research, Estimates), two top Internet equipment suppliers he once thought were insulated from economic weakness.
"While both companies, EMC and Sun, are leaders... a slowdown in corporate information-technology spending can impact both companies' financial performance -- gravity is bound to take over," Neff wrote in a note to clients.
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In a research note issued late Thursday, Neff said he was maintaining its earnings estimates on the companies, but noted they were at risk of being cut. The move followed Thursday's warning by Microsoft.
"When we downgraded the PC stocks in September, we were concerned about signs of weak consumer demand -- which has continued to deteriorate," Neff said.
EMC shares closed Thursday at $74.63, while Sun shares closed at $31.69.
Red Hat
WR Hambrecht raised its 2001 results estimate for Red Hat (RHAT: Research, Estimates) and reiterated its "buy" rating and $15 price target on shares of the company, which makes packaged Linux computer operating systems.
On Thursday, Red Hat reported a third-quarter loss that was narrower than estimates, as demand rose for the Linux operating system, seen as an alternative to Microsoft's Windows.
Hambrecht narrowed its 2001 loss estimate for Red Hat to 4 cents a share from 6 cents a share.
Red Hat shares closed at $8.69 Thursday.
Cisco
Merrill Lynch sought to reassure investors about Cisco Systems (CSCO: Research, Estimates) after the networking company announced the resignation of executive vice president Gary Daichendt.
"We believe his exit from the company has been in the works for some time; he is not leaving to go to another company," Merrill wrote in a research note. "We are not overly concerned about the departure, and we do not believe it represents any sort of trend."
Costco, BJ's Wholesale
Merrill Lynch raised its investment ratings on warehouse club operators Costco Wholesale (COST: Research, Estimates) and BJ's Wholesale Club (BJ: Research, Estimates) to "buy" from "accumulate."
It also added Costco to its "Focus One" list of top stock picks.
"We believe that retailing stocks are now in the early stages of a bull move that could accelerate in 2001," Merrill wrote in a research note.
It said Costco's earnings and sales should begin showing signs of improvement in early 2001, and the shares are likely to rise significantly a year from now.
"In our view, as Costco stock begins to run, BJ's Wholesale shares will be pulled along in Costco's wake," Merrill said in a research note.
Briefly
Goldman Sachs cut its 2001 earnings estimate for computer maker Hewlett-Packard (HWP: Research, Estimates) to $1.85 from $1.95.
SG Cowen analyst Kemp Dollivan initiated coverage of diagnostic testing firm Quest Diagnostics (DGX: Research, Estimates) with a "strong buy" rating.
 Cowen analyst Drew Peck downgraded chipmaker Chartered Semiconductor (CHRT: Research, Estimates) to "buy" from "strong buy."
Cowen also issued a research note about the combined stock of America Online (AOL: Research, Estimates) and CNNfn parent company Time Warner (TWX: Research, Estimates), giving it a "strong buy" rating and a $100-$110 price target.
The Federal Trade Commission approved the merger of the two companies Thursday, with a number of conditions. Cowen said the combined stock will be "the new 'must-own' media stock." 
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