Earnings progress: Tech readies for a comeback

BY DAVID SPEAKMAN

Year-end earnings, now in full bloom, show Silicon Valley is leaner, meaner and poised for a comeback.

Biz Ink looked at the recent earnings reports of three of the biggest brand names in technology, as well as how Wall Street analysts reacted, to see if any trends were emerging.

For the most part, analysts praised corporate focus on core product, gains in market share and company readiness to capitalize on an economic turnaround.

Intel chips not down

Santa Clara-based semiconductor giant Intel Corp. (Nasdaq: INTC) said revenue from its fourth quarter, ended Dec. 31, came in at $7.2 billion, a 10 percent increase from the previous quarter. That translated to a profit of 16 cents per share, up 54 percent from the previous quarter, beating most analyst estimates.

Intel said growth in its Xeon family of chips helped its Intel Architecture quarterly revenue rise to $5.9 billion, a 2 percent increase from last year. The company has high hopes for its new Banias and Centrino chips for laptops.

“We believe that Intel’s continual investment in cutting-edge technologies enables the company to maintain its leading position and gain market share,” said David Duley, Wells Fargo Securities analyst, in a Jan. 15 research report.

Duley says Intel could see an uptick this year, beginning in July as Microsoft stops supporting most corporate Windows 9x/NT products, forcing business to buy more powerful machines to take run Windows 2000 or XP.

“We view the potential corporate upgrade for Windows 2000/XP in 2003 as a likely spark,” say Pacific Crest Securities analyst Michael McConnell.

Yahoo surfs past Wall Street

Yahoo Inc. (Nasdaq: YHOO) reported fourth quarter profit of 8 cents per share, up from a loss of 2 cents in the year-ago period. That result was 2 cents higher than the Street’s consensus, according to Thomson Financial/First Call.

The Sunnyvale Web portal reported quarterly revenue of $285.8 million, up 51 percent from 2001. Last year, Yahoo said its revenue suffered because of the Sept. 11, 2001 terrorist attacks.

“Yahoo is the best-performing portal and, as such, is well-poised for upside from an improving ad market,” says Safa Rashtchy, a U.S. Bancorp Piper Jaffray analyst.

Margins for Yahoo improved across the board, reflecting increased leverage, a more favorable revenue mix and well-controlled costs and expenses, according to Standard & Poor’s analyst Scott Kessler.

“Earnings-per-share were higher than we anticipated not only because of operating improvements, but also due to a lower-than-forecasted tax rate and an active stock-repurchase plan,” Kessler said in a Jan. 16 research note.

Also cited as a key factor in Yahoo’s turnaround is the company’s staffing reductions and restructuring during the past two years.

S&P says not to expect much of an increase in Yahoo’s share price since — at more than $18 a share — the stock is already overpriced.

“Although the fourth quarter gave investors reason for encouragement, we nevertheless remain bearish on the near-term prospects for the shares, based largely on their excessive valuation,” Kessler says.

Kessler says Yahoo trades at about 65 times 2003 operating earnings estimates, which exceeds those of its peers. Consequently, Kessler believes Yahoo shares should be trading in the $12 to $14 range.

eBay continues winning streak

San Jose-based eBay Inc. (Nasdaq: EBAY) saw more than $4.6 billion of gross merchandise sales in the three months ended Dec. 31 — that’s about one-third of all online sales for the quarter, according to Nielsen/NetRatings. eBay reported fourth quarter profit of 28 cents a share on revenue of $413.9 million, beating the Street consensus by 4 cents and doubling last year’s result.

“Perhaps even more impressively, the company generated an incremental 6.8 million registered users,” says Bear Stearns analyst Jeffrey Fieler, saying the company performed ahead of his expectations by attracting a total of 61.7 million users as of Dec. 31.

“Building on a strong holiday online retail season that favored bargain-conscious and time-starved consumers, eBay’s operating performance exceeded expectations in virtually every category,” says Christa Sober, an analyst with Thomas Weisel Partners. “The outperformance should assuage doubters’ concerns that the company might not reach its 2005 targets of $3 billion in revenue and over $1 billion in free cash flow.”

Adding it up

As for tech trends so far, judging by Wall Street, successful valley companies paid attention to the bottom line.

Whether launching new services to grow lucrative markets, or cutting back on services, location or staffing in losing ventures, a focus on growing core business profits garnered most analyst praise.