4 Tech Giants Searching for Upside

NEW YORK (TheStreet) -- Tech earnings season got off to a rocky start with Google's (GOOG) mixed earnings report, and investors are bracing this week for a round of big-tech quarterly postings that are likely to be tinged by continued weak PC sales and worries of supplies coming out of Japan.

The tech giants scheduled to report this week are Apple ( AAPL) (Wednesday), Intel ( INTC) (Tuesday), IBM ( IBM) (Tuesday) and Qualcomm ( QCOM) (Wednesday).
Weakness in the global PC market could pose challenges for Intel, but CEO Paul Otellini remains bullish.

Last week, research firm IDC noted that the global PC market contracted during last quarter, the first such shrinkage since the recession. Fuel and commodity prices, combined with the impact of the Japanese earthquake, contributed to a 3.2% decline, said IDC, which had predicted growth of 1.5% compared to the prior year's quarter.

"IDC's mention of weaker-than-expected commercial demand may trigger incremental investor concern, in our view," said Bill Shope, an analyst at Goldman Sachs, in a note released last week.

Goldman was looking for the PC market to grow 6.4% year-over-year in 2011, although Shope admits that this forecast may now be optimistic. "We recently noted that a 0% PC unit growth rate was possible for 2011, and data from the first quarter of 2011 has now made this a much more probable scenario to consider."

Fluctuations in the PC market could spell trouble for Intel, in particular, and have already prompted a number of analysts to lower their estimates for the No. 1 semiconductor company.

A downturn in consumer spending, a trend noted by both Cisco ( CSCO) and HP ( HPQ) last quarter, could potentially dent Qualcomm and Apple this week. A bigger challenge for Apple -- and the rest of the tech sector -- is getting hold of components in the aftermath of the Japanese earthquake.

For IBM, convincing investors that there is plenty of runway ahead for its shares may be the biggest hurdle, even if it reports a solid set of results.

Read on for more details on what to expect from Apple, Intel, IBM and Qualcomm's earnings.

Intel

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Reports: Tuesday, April 19, after market close.

Despite Intel's report of a strong fiscal fourth quarter, there are mounting concerns about the PC market's impact on the chip firm -- as well as increased competition from rival AMD ( AMD).

Analyst firm Sterne Agee recently reduced its estimates for the chipmaker through 2012, citing a slower computer market. Canaccord Genuity also cut its Intel target and estimates, noting that PC production appears to be tracking below expectations.

"Intel is likely to guide short of consensus, in our view, as second-quarter PC production appears to be tracking below previous expectations," said Canaccord analyst Bobby Burleson, in a note. "While weakness is attributable to supply disruptions, we believe demand concerns for notebooks and the potential for server share shift in the back half of the year could pressure the stock."

Burleson explained that AMD could claw server share from Intel, thanks to its new Hercules chips The analyst also noted that supplies of raw materials in the wake of the Japanese earthquake, as well the impact of Apple's new iPad on the PC market, may present challenges. "On the demand front, notebooks may see weak sell-through given success of iPad 2 and aggressive campaigns by other tablet OEMs," he added.

Intel, however, is coming off of a very strong last quarter and CEO Paul Otellini has vowed to continue the firm's momentum.

The No. 1 semiconductor maker is looking for first-quarter revenue somewhere between $11.1 billion and $11.9 billion, up from $10.3 billion in the same period last year, when the company earned 43 cents a share. Analysts surveyed by Thomson Reuters are looking for the chip giant to bring in revenue of $11.6 billion and earnings of 46 cents a share.

As for recent history, Intel has been a profitable April trade in each of the last five years.

IBM

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Reports: Tuesday, April 19, after market close.

IBM's biggest challenge this quarter is one of perception.

After selling off its PC business to Lenovo in 2006, fickle consumers are less of a worry for IBM, which is now focused on winning enterprise dollars. This strategy seems to be working, but the tech bellwether continues to be perceived as solid and steady, rather than sexy.

"The company is having the same problem plaguing a lot of other business IT vendors -- 'consumerization' in the shape of trendy gizmos from the likes of Apple and social networking sites are driving much of the excitement among investors," said Charles King, principal analyst of tech research firm Pund-IT. "If steady revenues and commercial success were the key to share upside, companies like IBM, Microsoft ( MSFT) and EMC ( EMC) would be on the top of the world."

IBM's shares have risen more than 25% over the last 12 months, a decent uptick compared to the likes of HP, Microsoft and Dell ( DELL). Nimbler rising stars like WAN optimizer Riverbed ( RVBD) and storage guru CommVault ( CVLT), however, have gained 126% and 75%, respectively.

Set against this backdrop, one analyst -- Goldman Sachs -- sees IBM's share growth as limited.

Like Intel, though, IBM is coming off a strong fiscal fourth quarter. Speaking during IBM's last quarterly conference call, CFO Mark Loughridge noted that corporations are reopening their wallets and that the tech giant should continue its upward trajectory.

Analysts surveyed by Thomson Reuters expect IBM to report revenue of $24.02 billion and earnings of $2.30 a share, up from $22.86 billion and $2 a share in the prior year's quarter.

One thing to note: IBM's stock has dropped following five of its last six quarterly earnings reports.

Once again, software, the high-margin jewel in IBM's crown, will be key.

During the fourth quarter, IBM's software business brought in revenue of $7 billion, up 7% compared to the same period last year, or 8% at constant currency. Growth in the company's vast services segment, however, was more modest, with revenue increasing 2% to reach $14.9 billion. Investors will be paying close attention to this number on Tuesday, particularly with IBM looking for a 2011 revenue boost from its outsourcing backlog.

Apple

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Reports: Wednesday, April 20, after market close.

Apple's second-quarter results cap an eventful few months for the tech giant, marked by Steve Jobs' third medical leave of absence, the long-awaited arrival of the Verizon ( VZ) iPhone and the launch of the iPad 2.

COO Tim Cook now handles the company's day-to-day running while his boss is out on leave, but investors would rather hear from Jobs during Wednesday's conference call. The CEO, regarded as the driving force behind Apple's success, briefly emerged to launch the iPad 2 last month, much to the delight of fan boys everywhere.

Investors are unlikely to receive any information on Apple's long-term CEO strategy. Despite calls for more transparency, Apple shareholders recently voted down a proposal that would have required the company to reveal the succession plan for its next leader.

On the product side, there is optimism that Apple can continue its recent momentum. Blogger and investor The Balanced Bull, writing on SeekingAlpha.com, estimates that Apple could sell 16.9 million iPhones during the second quarter, 3 million to 4 million of which will be CDMA iPhones running on Verizon's network.

If these numbers prove correct, Apple's recent iPhone tear would continue. The tech giant sold a record 16.2 million iPhones during its recent fiscal first quarter, an increase of 86% compared to the same period last year. Since then, the tech giant started selling the Verizon iPhone, marking the end of AT&T's ( T) exclusive U.S. iPhone deal.

Verizon says that it will not release its iPhone sales figures until its first-quarter posting later this week, although the telecom giant said that it sold more of the phones during the launch than any other product in the company's history.

Investors also want more details on the impact of the Japanese earthquake, as well as Apple's plans for the iPhone 5. Apple is apparently eschewing its traditional June launch for the new iPhone, prompting speculation that it may not appear until the fall.

With less than a full quarter of iPad 2 sales, the Balanced Bull expects Apple to ship 6.2 million iPads during the second quarter, compared to 7.3 million iPads during the traditional stronger fiscal first quarter. Apple's conference call comments on iPad adoption will also be key. Last quarter Apple said that 80% of Fortune 100 companies are either deploying or piloting the technology, a trend which is increasing the pressure on rivals such as Research In Motion ( RIMM) and its PlayBook.

Analysts surveyed by Thomson Reuters expect Apple to post revenue of $23.27 billion and earnings of $5.35 a share, compared to sales of $13.5 billion and earnings of $3.33 a share in the prior year's quarter.

Qualcomm

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Reports: Thursday, April 21, after market close.

Qualcomm, which makes wireless components for smartphones and tablets like Apple's iPhone and iPad, reports its fiscal second-quarter results this week. Qualcomm, says analysts, is facing some headwinds.

These include potential problems getting parts from Japan, according to Vijay Rakesh, an analyst at Sterne Agee, as well as weakness in the Korean handset market. Overall, he added, Qualcomm is facing a soft market in the first half of 2011.

Rakesh said this means Qualcomm may miss second-quarter consensus estimates; the analyst is predicting revenue of $3.55 billion and earnings of 78 cents a share, compared to Wall Street's forecast of $3.62 billion and 80 cents a share. Qualcomm has offered revenue guidance between $3.45 billion and $3.75 billion, and expects earnings between 77 cents a share and 81 cents.

The outlook for Qualcomm improves with time.

"Longer-term, we believe smartphones could grow to 45% of the overall handset market by 2014, up from 25% today," said the analyst. "Qualcomm solutions in iPhone 4, iPhone 5 and iPad 2, combined with potential new Windows-based Nokia ( NOK) phones and the China handset market should be tailwinds in the second half of 2011."

Shares of Qualcomm, which recently hiked its dividend, are up 5.58% so far this year.

--Written by James Rogers in New York.

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