Most tech sectors posted mild gains last week, extending the rebound from
the prior week, although Internet stocks trailed the broader tech universe,
due in part to an earnings' miss from Amazon.com, and despite strong results
from Google. Looking ahead, the economic calendar is on the light side this
week, although on the earnings front, Cisco Systems will be in the spotlight
after the close on Tuesday. Analysts such as Morgan Stanley and J.P. Morgan
expect mostly in-line results, with Morgan also predicting a positive outlook
from the bellwether for its current quarter. However, J.P. Morgan anticipates
gross margins will take another turn down. Another topic in the limelight may
be the wedding bells that recently resounded out of the telecom sector. Last
week, SBC Communications confirmed plans to merge with AT&T, while there were
also rumors that Qwest Communications may be mulling a bid for MCI. Analysts
were quick to point out the possible negative impact of such unions on capital
spending for telecom gear firms. Indeed, Jefferies notes that historically,
because of merger activity, "carriers tend to slow down [capex], as they work
to integrate two separate networks and organizations." However, the impact is
likely to be modest in the intermediate term, as there is little direct
overlap between the two networks, commented the broker. Jefferies believes
Sonus and Ciena could see some small positive from the merger, while Nortel,
Tellabs and Lucent could be negatively impacted. Separately, Smith Barney is
slightly more upbeat on the issue, seeing no negative impact on 2005 capex
plans at all, as, for instance, AT&T's backbone needs a capacity upgrade to
support the SBC traffic. Nevertheless, this is all speculation, since the
AT&T/SBC merger could take as long as a year to get regulatory approval, and
as the sudden sprouting of M&A deals in the sector shows, a lot can still
happen till then.
High-Tech Monday Update is provided courtesy of Thomson Financial. This
information is believed to be true and accurate; we take no responsibility for
inaccurate information and reserve the right to update our reports. For more
information, please visit our web site at http://www.thomson.com/financial.
SOURCE Thomson Financial Corporate Group
back to top
