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Is the tech rally for real?
Tech stocks had a decent first quarter. But is the rally sustainable?
March 28, 2003: 2:27 PM EST
By Paul R. La Monica, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Technology, despite concerns about the war in Iraq and the still sluggish economy, was the best performing sector in the first quarter.

The S&P Technology index was up 3.8 percent as of March 27, compared to a loss of 1.3 percent for the broader S&P 500. And some beaten down techs surged in the first quarter on hopes that the tech sector has finally bottomed.

Telecom equipment companies Corning, Alcatel, Nortel and Lucent all enjoyed double-digit percentage gains. Internet stocks were big winners as well, with Expedia, Yahoo! and DoubleClick leading the way.

Is this it?

But is this rally for real?

While the telecom equipment companies have done well, telecom service providers (the companies that buy the equipment) have been among the worst performers. Long-distance companies AT&T and Sprint, Baby Bell SBC Communications and Qwest all slumped as the outlook for the local and long distance market has continued to weaken.

Top Techs
The ten best performing tech stocks with a market value of at least $1 billion.
CompanyYTD price change*Industry
Rambus103.1%Semiconductors
Corning81.9%Telecom equipment
Alcatel64.2%Telecom equipment
Expedia62.0%Internet services
Interdigital Communications60.1%Telecom equipment
American Tower55.0%Wireless telecom
Yahoo!49.3%Internet services
Semtech45.7%Semiconductors
MEMC Electronic Materials45.4%Semiconductor equipment
Cable & Wireless45.1%Telecom services
* Through Mar. 27
Source:Thomson/Baseline

What's more, any optimism for tech doesn't seem to be based on a rosy outlook for the first half of the year. Some companies, most notably Oracle, have said that as war fears escalated, big businesses again slowed spending after a rebound in January.

"If Oracle, when it came to crunch time in February, had a tough time getting new business, then companies whose crunch time is this week will have a tougher time still," said Arnie Berman, chief technology strategist for Soundview Technology Group.

To that end, first quarter earnings estimates have come down since the beginning of the year.

According to First Call, analysts are predicting earnings growth of 11 percent for technology stocks. At the beginning of the year, expectations were for 16 percent growth.

Second quarter estimates are slowly heading south as well. At the beginning of the year, analysts were forecasting earnings growth of 25 percent. Now, analysts expect growth of 23 percent.

Second half could be strong

But analysts still have bullish views about the second half of the year. They are expecting growth of 54 percent in the third quarter, up from 50 percent at the beginning of the year. And for the fourth quarter, estimates have increased from projected growth of 20 percent at the beginning of February, to 28 percent growth.

Bottom of the barrel
The ten worst performing tech stocks with a market value of at least $1 billion.
CompanyYTD price change*Industry
SK Telecom-36.3%Wireless telecom
AT&T-35.6%Telecom services
Konami-32.6%Application software
CANTV-28.7%Telecom services
Satyam Computer-27.0%IT consulting
Qwest Communications-26.8%Telecom services
PCCW -25.9%Telecom services
SBC Communications-23.1%Telecom services
Turkcell-22.5%Wireless telecom
Agilent Technologies-21.3%Electronic equipment
* Through Mar. 27
Source:Thomson/Baseline

Analysts are known for excessive optimism however, so these growth expectations may very well be too high.

But Pip Coburn, global tech strategist with UBS Warburg, said that these numbers still appear to be attainable. The first quarter is normally weak anyway due to seasonal factors and the war is obviously not helping, but investors should not assume that the whole year will be bad, he said.

"It's too early to pull the plug on 2003 estimates," said Coburn. "If things don't pick up by June or July then numbers will have to come down."

Berman said he's hearing from technology companies that customers are delaying spending in the short-term, which will probably put a crimp on revenue growth in the first half of the year. But he added that customers are saying "Come back later" as opposed to "Go away," which could be a good sign.

"The key question is whether or not business that's not getting closed is representing postponed business or forgone business," said Berman. "The anecdotal evidence is indicating that business is probably postponed."

If Berman is right, then the tech sector might end its three-year bear run. But if we're still talking about weak demand for tech this summer, then this first quarter pop will probably be looked back on as just another sucker's rally.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.