Growth in Tech Becoming an Issue

The tech sector will continue to be the place to make money but it is also a sector that can be quite volatile. One major mistake and you can find yourself on the sidelines looking in.

Over the last two weeks, I have been noticing several key bellwether technology stocks warning of slower growth or reduced expectations. The problem is when the NASDAQ is rising as it has been in 2006, you really have to take a step back and evaluate the current situation.

Internet advertising king Google Inc. (GOOG) recently warned investors to expect slower growth. The stock sold off and investors started to question the valuation of the tech sector.

It was the first warning ever by Google and shows that no company is immune to bad news. Of course, Google executives subsequently tried to reassure investors that all was not bad and that it would eventually become a $100 billion company.

The reality is Google appears to be giving out mixed signals and in fact is just trying to do some damage control, especially when the stock has seen tens of billions of dollars in market-cap vaporized. The truth of the matter is there clearly are some growth issues. And if the advertising cycle reverses or slows, Google could be heading much lower than the current price.

Just last week, another Internet bellwether stock, Yahoo Inc. (YHOO) warned investors to expect lower revenues in its first quarter, something that should be viewed a red flag to investors.

Research in Motion (RIMM, TSX/RIM) made a downward revision in its Q4 earnings to between $0.64 and $0.64 per diluted share, down from the previous forecast of $0.76-$0.81. Q4 revenues were axed to between $550 million and $560 million, down from $590 million to $620 million. The consensus Street estimate was $0.78 per diluted share on revenues of $608.6 million according to Thomson First Call.

RIMM attributed the decline to uncertainty regarding its e-mail service in the United States, but it may also signal market share gains by its rivals.

On Monday, bellwether Texas Instruments (TXN), the top supplier of mobile phone chips, gave the market a mixed message. Texas increased the lower end of its profit range for the first quarter to $0.31 per share, up from the previous low end of $0.29 per share. The problem was the top end was left unchanged at $0.33 per share, something the market was clearly not happy about, with some selling in the stock in after hours trading on Monday.

The point is the market wants to hear good news and Texas failed to provide it. Even on the revenue side, the new range of $3.22 billion to $3.35 billion was marginally light on the top end compared to the previous range of $3.11 billion to $3.38 billion provided in January.

So despite the strong sentiment towards the NASDAQ and tech stocks this year, the recent reports from some of the key bellwether stocks may make you want to take a pause.

Leave a Reply

Your email address will not be published. Required fields are marked *


Magic Or High Tech?

While many tend to blur the difference between science fiction and fantasy, those involved in either field are quick to detail the differences. Fantasy may deal with elves or gnomes, shaman or wizards. Science fiction deals with alien beings that evolved much like ordinary life forms on Earth, except they evolved on Mars, or a […]