Tech Earnings Next Week Could Be a Market Catalyst
While the Dow and S&P 500 indices cling to their respective 50-day moving averages, the Nasdaq Composite fell below the key support level earlier this week. The recent underperformance of Apple (Nasdaq: AAPL) continues to weigh heavily on the tech sector overall.
It's never a good idea owning a stock when uncertainty is rampant, and that's certainly the case with Apple as the market continues to question whether or not the company will be able to continue its track record of innovation and execution without Steve Jobs.
With the Nasdaq acting as weak as it is, is it reasonable to think that an avalanche of tech earnings next week will left the tech index out of its recent doldrums? It's possible, but not likely in the near-term as sellers continue to have the upper hand in the market.
Dow component Intel (Nasdaq: INTC) reports next week. It's hard to be optimistic about robust results at the chipmaker. Earlier this week, Bernstein downgraded the chipmaker to "underperform" and Nomura reduced its profit estimates on the company through 2013.
In early September, Intel lowered estimates due to "weaker than expected demand in a challenging macro-economic environment." It also said customers were reducing inventory due partly to soft PC demand and slowing growth in emerging markets. Yesterday, International Data said that PC makers shipped 87.8 million systems in the third quarter, down 8.6 percent from a year ago considerably below IDC's forecast for a 3.8 percent decline.
The Thomson Reuters consensus estimate calls for profit at Intel to fall 23 percent from a year ago to $0.50 a share with sales down seven percent to $13.2 billion. As usual, investors will play close attention to non-GAAP gross margin at Intel. In the second quarter, it fell to 64.4 percent from 65.1 percent.
Don't get too pessimistic, though, because results should be solid from Ebay (Nasdaq: EBAY) and Google (Nasdaq: GOOG). EBay's PayPal unit continues to be a growth driver for the company. In the second quarter, the unit processed over $34 billion worth of transactions, up 20 percent from a year ago. Total sales rose 26 percent to $1.4 billion. For the third quarter, profit at eBay is seen rising 15 percent to $0.55 a share with sales up 15 percent to $3.4 billion.
Meanwhile, results should be solid at Google. Investors are not only feeling pretty good about the company's core search business, but sentiment seems to be improving regarding its acquisition of Motorola Mobility for $12.5 billion. Sales of cell phones which use the company's Android operating system are doing well. In June, Google introduced the Nexus 7, a seven-inch tablet to compete with the iPad.
In the third quarter, profit growth at Google is expected to slow sequentially from the second quarter, up nine percent to $10.56 a share. Sales, excluding traffic and acquisition costs (TAC), are seen rising 59 percent to $11.9 billion.
Here's an abbreviated earnings calendar for next week:
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