Tech Shares Slammed As Recovery Hopes Thin

Goldman Sachs analyst Laura Conigliaro said weak demand for technology lingers and the much-hyped second-half recovery may not be as strong as investor had hoped.

"End demand itself has certainly not shown any sign of improvement," she told Reuters. "The second half is getting awfully close and the hurdle is pretty high. But it does suggest that as we see improvement, it's going to be more muted improvement particularly if we're looking at the second half."

Several analysts cut their outlooks on technology heavyweights, dragging down the sector. The Computer Hardware index was off nearly 2 percent, while the S&P Software index lost 11 percent. The tech-laden Nasdaq Composite fell 1.75 percent.

Conigliaro cut her first-quarter revenue estimate on IBM to $19 billion from $19.35 billion.

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She also cut 2002 earnings estimates for IBM to $4.65 per share from $4.75 per share and lowered 2003 earnings to $5.30 from $5.40 per share.

Shares of IBM fell, $1.97, or 2 percent, to $100.89 on the New York Stock Exchange. On the Nasdaq, Microsoft shares were down $1.92, or more than 3 percent, to $58.46, among the top net losers while PeopleSoft shares were the No. 1 losers in early morning activity, off $10.17, or 27 percent, at $27.20, their lowest price since October.

Makers of software applications, which enable businesses to automate their activities, also have seen a more difficult first quarter than they expected. Since the close of the quarter on March 31, several have lowered their outlooks.

PeopleSoft warned after the market closed Monday that its first-quarter earnings would miss previous forecasts, joining joined a list of other pessimistic application companies, such as E.piphany Inc., Stellent Inc. and ONYX Software Corp.

Credit Suisse First Boston analyst Brent Thill downgraded PeopleSoft to a "hold" from a "buy" rating.

"As one of the most well-positioned vendors in the (applications) space," he wrote in a research note. "PeopleSoft's first-quarter license miss helps confirm our belief that we have yet to see any signs of a broad scale recovery in applications software."

PeopleSoft and Microsoft helped drag down other application makers such as Siebel Systems Inc., which was down $3.21, more than 9 percent, to $30.99 and Documentum Inc., down $1.71, nearly 7 percent, to $22.90.

Goldman also lowered its 2002 earnings estimate for corporate computer maker Sun Microsystem Inc. to a loss of 10 cents from a loss of 9 cents and cut its 2003 earnings outlook to 19 cents per share from a previous estimate of 23 cents per share.

Conigliaro cut data storage machine maker EMC Corp. estimates as well, saying the first quarter ended strongly but was not enough to offset a slow start. She put EMC's 2002 loss at 5 cents per share, instead of 3 cents per share.

The lackluster technology economy also dimmed Goldman Sachs analyst Rick Sherlund's outlook on Microsoft. Although he maintained his outlook on the software giant's 2002 earnings results, he cut his fiscal 2003 outlook to $1.95 from $2.05.

"The timing and pace of recovery are at issue," Sherlund wrote in a research note. "Directionally, we continue to expect the macroeconomic improvements to boost corporate profits and in turn capital spending plans. For Microsoft, this implies a slower pace of recovery."

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