Wall Street Beat: IT sales down but analysts hike estimates

IT and communications bellwethers Sprint, Alcatel-Lucent, Cisco and Symantec this week reported sagging quarterly sales, but analysts, impressed by cost controls and hopeful that a bottom to the tech market has been reached, raised estimates on share price valuations and earnings of some vendors.

As usual, there was plenty of bad news to go around. Networking and telecom equipment maker Alcatel-Lucent reported Tuesday that for the first quarter, revenue dropped to €3.60 billion (US$4.82 billion) from €3.86 billion a year earlier, while its net loss increased to €402 million from €181 million. Officials forecast a 10 percent decline in sales this year from 2008, though they also said they expect to reach break-even on adjusted earnings in the wake of layoffs and other cost cuts.

The news about cost controls appeared to cheer investors, who pushed company shares up from $1.96 to $2.04 after the announcement.

Analysts appear to be looking at vendor cost structures to determine which companies will be in pole position to take off when IT and telecom users start spending money again. Despite Sprint-Nextel's dismal quarterly report Monday, UBS increased estimates on the company to reflect an improved cost structure, while Oppenheimer raised its rating on the company from "underperform" to "perform."

"We generated more than enough cash in this quarter alone to pay all of our 2009 debt maturities," said Sprint Nextel CEO Dan Hesse in a statement.

Sprint said earnings fell 18 percent to $505 million while operating revenue dropped 12 percent to $8.2 billion.

Cisco Systems, reporting Wednesday, said revenue fell 17 percent to $8.2 billion while net income plunged 21 percent to $1.3 billion.

Cisco said it expects revenue to fall in the current quarter between 17 percent and 20 percent from a year earlier, though CEO John Chambers said the company is sticking to its long-term plan for 12 percent to 17 percent year-over-year revenue growth.

Chambers also said Cisco should be able to trim annual costs by $1 billion by the end of this year, and possibly even cut $1.5 billion.

Barclays increased estimates on the company, including raising its share forecast to $20, to reflect operating expense controls.

Meanwhile, even though the chip market is getting hit hard by the drop in demand for PCs, Credit Suisse Thursday added Intel to its Focus List of stocks, giving it an "outperform" rating and an $18 price target, saying that the company is positioned to grow along with a recovery in PC demand.

That evaluation comes in the wake of mixed news from the Semiconductor Industry Association, which said Monday that chip sales slumped 30 percent in March, to $14.67 billion. That figure, however, is 3.3 percent higher than February sales, suggesting a stabilization of the market.

Not all tech vendors were blessed by higher estimates from analysts this week. On Wednesday Symantec said that it would report a $249 million loss for the quarter ending April 3. Even though officials said there would be no more layoffs unless economic conditions worsened, and that it has finished its analysis of goodwill losses stemming from its string of acquisitions in recent years, brokerages were dour about its short-term prospects.

Morgan Stanley downgraded Symantec Thursday to "equal weight" with a $19 price target, saying the company has little growth potential in fiscal 2010. Citigroup also downgraded Symantec from "buy" to "hold" with a $20 price target, saying that revenue growth is not likely to occur for another year.

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