Intel Should Tell Us a Thing or Two About Tech on Thursday - TheStreet

SAN FRANCISCO -- Even as tech stocks managed to stiff the

cynics today, nervous eyes turned to tomorrow's midquarter update from

Intel

(INTC) - Get Report

. Intel's news will play a big role in determining whether the message from

Xilinx

(XLNX) - Get Report

(

things aren't getting worse

) or

Hewlett-Packard

(HWP)

(

yes, they are

) is telling the "real story" in techland.

Sure, the

Nasdaq Composite

fell 0.7% and the majority of stocks were losers in over-the-counter (as well as listed) trading. But it could have been worse. Hewlett's

negative news presented a ready-made excuse for some good old-fashioned profit-taking after yesterday's robust gains.

The Comp outperformed the

Dow Jones Industrial Average

, which shed 0.9%, and the

S&P 500

, which lost 1.1%. In addition to H-P, which skidded 4.5%, blue-chip averages were weakened by flagging energy stocks and

J.P. Morgan Chase

(JPM) - Get Report

, which shed 3.4%. The financial services giant said its trading revenues and

venture capital investments have suffered.

Today's relatively resilient performance from tech brings us back to Intel, whose call occurs after the close tomorrow, meaning the edginess in techland is likely to mount as Thursday's session unfolds. (

Broadcom's

(BRCM)

warning late Wednesday isn't likely to help.)

Intel rose 0.3% today, but most on Wall Street believe the company will have to scramble to stay on track and make even the low end of its revenue guidance,

previously set at $6.2 billion to $6.8 billion. Furthermore, analysts at

Merrill Lynch

and

Credit Suisse First Boston

cautioned that Intel may be able to maintain prior revenue guidance only by channel stuffing, as

Herb Greenberg

reported.

Conversely, Hans Mosesmann at

Prudential Securities

believes the chip giant will "make the quarter," and Jonathan Joseph at

Salomon Smith Barney

reiterated his estimates for $6.35 billion in revenues for the quarter and earnings per share of 13 cents, which is 2 cents above the consensus.

"They might narrow the

revenue range but I expect no change in outlook," Joseph told The Taskmaster. (Joseph maintains a 1M or "buy" rating on Intel; Salomon Smith Barney has not done underwriting for the company.)

Jeff Van Harte of

TransAmerica Funds

in San Francisco, which manages about $3.5 billion, said the wide discrepancy of opinions about Intel is notable, given the company is so widely followed.

Still, the folks at TransAmerica are putting their faith in the chip giant.

"From the body language, I would expect them to meet guidance and say things have stopped getting worse," said Tim Gaumer, an analyst at the firm, who doesn't expect "anything out of the ordinary" when it comes to inventories. He noted inventories are at low levels throughout "the whole food chain."

A Xilinxian dose of "things aren't getting worse" from Intel would certainly please the bulls.

TransAmerica's optimism about Intel is part of a broader belief that the PC space will be the first area to benefit when stabilization returns to the tech area, beginning later this year or early 2001. PC "earnings are depressed now," Van Harte conceded, but "business is more stable and I'm more confident of recovery

there vs. optical, where earnings have cratered and some stocks are still overvalued."

The rollout of the Windows XP operating system, in conjunction with flat-screen panels, will help spark an upgrade cycle in business and unleash pent-up demand among retail consumers, he argued. "It will not be a Windows 95-type event, but

XP will be significant."

Van Harte, who manages the $200 million

(TEQUX)

TransAmerica Premier Equity fund, is seeking to "catch the recovery" in PCs via long positions in Intel,

Dell

(DELL) - Get Report

,

Microsoft

(MSFT) - Get Report

and

Applied Materials

(AMAT) - Get Report

. (Notably,

Advanced Micro Devices

(AMD) - Get Report

issued some mildly positive comments about the PC market after the close Wednesday.)

The fund was down 6.6% in 2001 through yesterday, after falling 13.8% in 2000, according to

Morningstar.com

.

Notably, while Van Harte foresees the light at the end of the tech tunnel, he's not overly exposed to the group. Currently, about 22% of the fund is in tech, he said, far less than at its peak last year.

Areas where the fund manager sees better prospects include financial services, where favorites include

Northern Trust

(NTRS) - Get Report

,

State Street

(STT) - Get Report

and

MBNA

(KRB)

.

Other recommendations (and longs) include

Comcast

(CMCSA) - Get Report

,

Cox Communications

(COX)

,

Robert Half International

(RHI) - Get Report

and

Concord EFS

(CEFT)

.

The Anecdote, Please

That a growth manager like Van Harte isn't terribly enamored of tech got me thinking about

Doug Kass'

point

yesterday that institutions remain skeptical about the sector.

For whatever it's worth, Hugh Johnson, chief investment officer at

First Albany

, which manages more than $600 million, also expressed views supportive of Kass' contention.

Johnson declared without hesitation today that "the bear market ended and a

new bull market began on March 22," and that tech stocks are "no longer particularly overvalued." The price/earnings-to-growth ratio of the 238 tech stocks in the

Russell 1000

is currently around 1.0 vs. 1.87 at the peak in March 2000, he noted. "You get a couple more companies like Xilinx saying 'it doesn't suck as much' and you watch how

investors climb on because the valuations are not as extreme."

Nevertheless, First Albany remains underweight tech and telecom.

As reported

previously, Johnson's preference is to wait for trends to unfold, rather than seeking to predict them. Still, in the context of this sentiment debate, it's notable that he's optimistic today's outperformance by tech could soon be the norm.

"Tech has not yet hit the relative performance trip wires that tells me to move," he said. "I believe it will happen, but it hasn't happened yet."

The ball is in Intel's hands now.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.