By William Andrews
Which members of BusinessWeek's Info Tech 100 have done best so far in 2004? Here are the top 10 from our list of the world's top-performing IT companies, as ranked by price performance year-to-date through July 30, as well as the 10 worst performers. (The original list was published in BusinessWeek's annual IT 100 Special Report, based on data as of May 30, 2004.)
Overall, it has been a summer to forget for technology investors. If June saw nervous investors sitting on their hands, July brought out the sellers. Witness the declines in some key tech benchmarks for the month: 7.8% for the Nasdaq composite index, 14.2% for the Philly Sox index, and 8.0% for the S&P 1500 Info Tech index.
What brought on the malaise? Well, the broader market does tend to act sluggishly during the summer months. But there were some negative developments specific to the sector. Exhibit A: a spate of earnings warnings from software companies like Veritas (VRTS), Siebel Systems (SEBL), BMC Software (BMC), and Emulex (ELX).
PEAK PERFORMERS. Investors were also disappointed by IT 100 member Intel's (INTC) slower-than-expected outlook for the second half.
Indeed, it was just those developments, along with other concerns about slowing demand and the effect of options expensing - yes, tech investors, it's coming - that led Standard & Poor's to lower its investment recommendation on the IT sector to marketweight from outperform on July 13.
Of course, members of BusinessWeek's IT 100 have been caught in the tech downdraft. Some 47 names on the list were in positive territory through July 30, compared with 71 at the end of the previous month (here's the full list with year-to-date performance data). But many stocks on the list are up handsomely for the year. Here's a look at the top 10 performers thus far in 2004, through July 30:
10 Best Performers in the IT 100, through July 30, 2004Company
Overall IT 100 rank (5/30/04)
NII Holdings (NIHD)
Apple Computer (AAPL)
Alliance Data Systems (ADS)
Mobile Telesystems (MBT)
Rogers Wireless Communications (RCN)
A glance at the top gainers finds some familiar names. Autodesk (ADSK) still holds down the top spot, though its year-to-date gains eroded during the month. And Apple Computer (AAPL) still inhabits the upper reaches of the list.
But there's some new blood as well. NII Holdings (NIHD), which provides wireless-communication services in selected Latin American markets, jumped into the No. 2 spot, thanks to a 12.9% gain on the month. NII posted lower second-quarter earnings, despite a 35% revenue rise, but raised its 2004 guidance for net subscriber additions by 40% to 400,000 -- and its forecast for consolidated operating income before depreciation and amortization to $330 million.
And Symantec (SYMC) found its way into the upper reaches, with a 6.8% rise in July. The Internet security company more than doubled its fiscal first-quarter earnings per share on a 48% rise in revenues, and boosted its 2005 revenue and earnings guidance.
LOSERS' CORNER. A number of Asian names dropped off the list of top performers, with Casio Computer the lone holdout. But Tokyo-based S&P equity analyst John Yang sees some buying opportunities in the Japanese market. He likes consumer-electronics plays, and thinks digital cameras, flat panel displays (LCD and plasma), and DVD recorders will continue to drive earnings for these companies.
What about the year's biggest losers? Here are the 10 worst performers, year-to-date:
10 Worst Performers in the IT 100, through July 30, 2004Company
Overall IT 100 rank
Lexar Media (LEXR)
Western Digital (WDC)
Advanced Semi. Eng. (ASX)
Texas Instruments (TXN)
Running through the list of laggards, we see that storage and memory names such as Lexar Media (LEXR) and Western Digital (WDC) remain firmly entrenched near the bottom.
But some marquee tech names have joined the list, like Texas Instruments (TXN). The maker of digital signal processors and analog devices lost nearly 12% on the month after it posted sharply higher fiscal third-quarter earnings, but issued disappointing guidance. Prudential analyst Mark Lipacis lowered his earnings per share estimates, and believes TI has only limited potential to boost selling prices on its commodity products.
Another well-known tech company also found its way to the lower depths: Unisys (UIS). The IT consultant reported lower second-quarter earnings on a 3% revenue decline, including a 15% drop in its infrastructure services segment and a 12% decline in its technology business on deferrals of enterprise-server contracts. And Unisys may have more reason to fret: S&P equity analyst Stephanie Crane says she's concerned about continued softness in spending on IT consulting, which she thinks is increasingly being regarded as discretionary by customers.
SEASON CHANGE. What's on the horizon for IT 100 companies in August? The earnings calendar is pretty light, but it does contain a couple of heavy hitters. On Aug. 10, investors will hear fiscal fourth-quarter results from networking-gear giant Cisco Systems (CSCO), while PC titan Dell (DELL) issues its second-quarter report on Aug. 12. Those reports will be closely scrutinized for clues to the health of those key segments of the IT world.
Other IT 100 earnings releases of note during the month: Computer Sciences (CSC) on Aug. 10, Analog Devices (ADI) on Aug. 12, and Autodesk on Aug. 19.
And then it's on to September. Let's hope that tech investors find some better tidings as they return from summer vacation. Andrews is managing editor of BW Online's Investing channel
Data compiled by Frederick Katzenberg