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Goldman: Just Say 'Not Now' to Tech

February 28, 2001|From Bloomberg News

Analysts at Goldman, Sachs & Co. have some advice for would-be technology investors: Just say no.

With slower spending cutting into U.S. tech companies' profits, investors shouldn't jump in to buy the stocks yet, according to Rick Sherlund and other analysts at the influential Wall Street firm.

Goldman cut its sales and profit forecasts Tuesday on computer-hardware companies including EMC Corp. (ticker symbol: EMC), Hewlett-Packard Co. (HWP) and IBM Corp. (IBM). Sherlund and his colleagues also lowered revenue or profit estimates at 12 software companies including Microsoft Corp. (MSFT) and Ariba Inc. (ARBA).

"Tech stocks may be closer to a bottom than not, but are probably still too early to be bought heavily," Sherlund and colleague Laura Conigliaro, who follows equipment companies, wrote in a report to clients.

The firm's comments add to the pessimism surrounding technology shares, which have led the Nasdaq Composite Index's 56.3% decline from its March 10 peak. They also helped trigger a sell-off in tech shares that sent the Nasdaq down 100.68 points Tuesday to 2,207.82.

Goldman analysts also cut revenue and profit forecasts for communications-semiconductor companies such as Applied Micro Circuits Corp. (AMCC) and computer-consulting companies including Keane Inc. (KEA).

Conigliaro, voted last year by money managers as the No. 2 analyst following enterprise hardware companies in Institutional Investor magazine's survey, cut her 2001 profit forecast for IBM by 5 cents to $4.95 a share, which is below the $4.99 a share average of analysts polled by First Call/Thomson Financial.

Another Goldman analyst, Nathaniel Cohn, lowered revenue and profit forecasts for Applied Micro Circuits, Anadigics Inc. (ANAD) and Conexant Systems Inc. (CNXT). For these companies and others that make semiconductors used in communications equipment, the slowdown in demand will last longer than expected, Cohn said.

The firm also lowered estimates on eight computer consulting and systems integration companies, including Agency.com Inc. (ACOM), Cambridge Technology Partners Inc. (CATP), DiamondCluster International Inc. (DTPI), Organic Inc. (OGNC), Predictive Systems Inc. (PRDS), Sapient Corp. (SAPE) and Viant Corp. (VIAN).

Among the stocks targeted by Goldman analysts, Ariba fell $2.44 to $17.25; Applied Micro slipped $4.75 to $30.31; Conexant lost $2 to $13; EMC fell $3.34 to $41.66; and Hewlett-Packard was off $1.40 at $28.60.

As the stocks have plunged in recent weeks, their price-to-earnings ratios also have declined. But analysts caution that, though tech P/Es may look reasonable now, they may still be high if earnings estimates continue to be slashed.

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