Expectations are high for technology companies during this financial reporting season, following encouraging results from bellwether Intel this week.
The world's largest chip maker, and the dominant player in the market for PC chips, reported strong results and a bullish outlook that lifted the shares of hardware companies around the world on Wednesday. At the same time, Europe's biggest semiconductor equipment company, Amsterdam-based ASML Holding NV, beat profit forecasts and increased its revenue guidance for the year. And National Semiconductor Corp., whose analogue chips are used in power management technology, said it will boost its quarterly dividend payment by 25 per cent to 10 cents a share.
"This bodes well in general for the tech sector," said Colin Cieszynski, an analyst with CMC Markets Canada. "Chip companies are often a leading indicator for the rest of the industry."
Intel cited rising demand among businesses for powerful server computers as one of its drivers of growth. And ASML, whose equipment is used to manufacturer memory chips, is benefiting from strong demand for smart phones and portable computers. That has analysts and traders anticipating co-ordinated gains from other major industry players.
On Thursday, Google Inc. is expected to post a 22.6 per cent rise in sales and 24 per cent increase in profit from a year earlier, to $5-billion (U.S.) and $2.1-billion respectively, according to Thomson Reuters First Call.
Intel rival Advanced Micro Devices is also on deck. The company is much more dependent on consumer sales than Intel so some analysts warn that AMD's outlook won't match Intel's as consumer confidence has waned. Expectations are for a 30 per cent rise in sales to $1.5-billion and profit of $49.3-million. Only 9 of 31 analysts following the company rate the stock a buy.
Next week, IBM Corp. and Microsoft Corp. report. Analysts expect IBM to show a 4 per cent rise in sales to $24.2-billion and a 9.3 per cent increase in net income to $3.4-billion. Fifteen of 22 analysts rate IBM shares a buy.
Microsoft is forecast to show a 16.4 per cent jump in sales to $15.3-billion and a 27 per cent increase in profit to $4.1-billion, based largely on sales of its new Windows 7 platform. Of the 37 analysts following the software giant, 29 rate the stock a buy.
Each of the technology giants is generating cash at a rapid pace and sitting on a war chest of funds. Intel had more than $18-billion in its coffers at the end of the second quarter. IBM boasted about $14-billion and Microsoft's stash approached $40-billion.
These balance sheets position the companies well for acquisitions and capital investments. IBM's chairman and chief executive officer, Samuel Palmisano, has said that the company plans to spend $20-billion on acquisitions between 2011 and 2015. Some feel Microsoft will also need to tap external expertise to catch up to Google and Apple in the mobile computing market. And Intel is well positioned to fund development of new multibillion dollar chip foundries.
Glen Yeung, of Citigroup, raised his price target Wednesday on Intel to $32 from $30, expecting that the company will see seasonal strength in the second half of the year, which includes the important back-to-school season.
Intel raised its full-year forecast on gross margins to 66 per cent, from 64 per cent.
"We see little outside of macro surprises and start-up charges to derail Intel's margin trajectory," Mr. Yeung wrote in a report. "These results, while not enough to eradicate macro-related concerns, are a constructive first data point on PC seasonality" in the second half of the year.
Smart Technologies ULC expects to list on the Toronto Stock Exchange and Nasdaq stock market on Thursday, completing the biggest Canadian technology IPO in a decade.
The Calgary-based company dominates the market for electronic whiteboards, which are replacing blackboard in classrooms and offices. Its listing is likely to land on target at a price of between $16 and $18 a share, netting about $600-million and giving the company a valuation of about $2-billion.
David Martin and Nancy Knowlton, the chairman and chief executive officer, respectively, founded Smart Technologies in 1987. Ten years ago, at the tail end of the technology IPO rush, they considered tapping the public markets but abandoned the idea as the markets soured. Since then, the company has grown steadily, posting $638-million in annual sales and profit of $142-million as of March 31. The company has been backed by the venture capital arm of Intel Corp. and private equity fund Apex Venture Partners, which plan to sell up to $450-million of subordinated voting shares.
Investors will be looking to see whether Smart Technologies can maintain its robust annual growth of 38 per cent, after reaping some benefits from the U.S. government's economic stimulus programs last year.