Tech Firms Could See a Drag From the Euro

A couple weeks ago, Jim Cramer suggested being wary of companies with big foreign-exchange exposure. That warning came home last Friday morning during Nokia's conference call, when the company highlighted foreign exchange as one of the reasons behind its negative outlook. You can see quite easily that the euro is down 20% vs. the dollar over the last five months, and it's actually down about 15% from last year's level.

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So who is exposed? More than a few companies are generating a significant amount of their revenue in Europe. Juniper Networks (JNPR - commentary - Cramer's Take), Lexmark (LXK - commentary - Cramer's Take), Network Appliance (NTAP - commentary - Cramer's Take), Oracle (ORCL - commentary - Cramer's Take), Sun Microsystems (JAVA - commentary - Cramer's Take) and Symantec (SYMC - commentary - Cramer's Take) all generate more than 30% of their revenue from Europe/Middle East/Africa (EMEA).

My initial guess was that the leader of the pack would be Hewlett-Packard (HPQ - commentary - Cramer's Take). However, at 40% of revenue from EMEA, Hewlett takes only second place and, given its preannouncement the other day, it has been able to offset the foreign-exchange impact.

The big "winner" is TechData (TECD - commentary - Cramer's Take). As you can see in the graph below showing the company's last six quarters, TechData has huge exposure to Europe and the euro.

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Adding to this is the fact that TechData's European operations have been the dominant source of the company's "growth" this year.

The company will be reporting next Tuesday, Nov. 25, before the market opens, and I find it hard to believe that we won't see a major drag from exchange rates in addition to the economic softness the markets are experiencing in general.

Yes, the stock is down and estimates have been reduced, but in this case, I don't think estimates are low enough.

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At the time of publication, Faulkner had no positions in the stocks mentioned.

Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.

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