By William Andrews
October has historically been a miserable month for the broader stock market. But for technology investors, 2004's version held more treats than tricks. Major technology indexes posted solid gains for the month, including a 4.1% rise for the Nasdaq composite index (which jumped 2.4% on the first day of the month), a 7.3% climb for the Philly Sox, and a 5.1% increase for the S&P 1500 Info Tech index.
This upbeat picture was reflected in the showing of stocks in BusinessWeek's IT 100. -- our list of the world's top-performing IT companies. Some 58 names on the list were in positive territory year-to-date through Oct. 30, compared with 53 at the end of the previous month. (See the full list of year-to-date performance.)
And while an advance in the broader stock market was fueled by macro factors like a late-month decline in oil prices -- though gains were constrained by uncertainty ahead of the Nov. 2 Presidential election -- for tech, it appeared that a cautious optimism about prospects for key industry segments began to take hold.
The tone for October was set right out of the starting gate. The sector got a lift on Oct. 1 when JP Morgan upgraded chip-equipment names Applied Materials (AMAT), Novellus (NVLS), and Teradyne (TER). That helped propel the Nasdaq higher by more than 4%.
On Oct. 13, two IT 100 members reported results that topped Wall Street estimates. On higher sales, Intel (INTC), the world's largest chipmaker, posted third-quarter earnings that were 15% higher. But it cited weak demand for its desktop-computer microprocessors as well as growing competition. And Yahoo! (YHOO), the Internet media company, reported that its quarterly profit nearly quadrupled as its Web site has had huge ad-sales success.
The more positive tone for was evident in a technology spending report from S&P Ratings, which continues to see moderate -- low- to mid-single-digit -- growth in 2004. While S&P forecasts some categories, such as semiconductors, to post very solid year-over-year revenue growth, others, such as telecommunications equipment, will be flat to modestly positive.
Software also attracted some attention. It seems analysts are becoming more optimistic about results from these long-suffering companies. The reason? Some Street seers believe they're starting to spy a post-boom tech-purchasing upswing. At the end of a two-year cycle, they reason, it's now software's turn to shine, since hardware has had its day.
The best-performing stocks in the IT 100 have posted some stellar numbers year-to-date. Here's a look at the top 10 thus far in 2004, through Oct. 31:
IT 100 LEADERS
IT 100 RANK (5/30/04)
% CHG. FOR OCT.
% CHG. YTD
Turkcell Iletisim Hizmetleri
Rogers Wireless Communications
A notable change took place atop the leaderboard in October: Apple (APPL) elbowed aside longtime No. 1 Autodesk (ADSK) for the top spot, thanks to a 35% surge in its stock price during October. On Oct. 13, the House of Mac announced fiscal fourth-quarter earnings more than double those of the prior-year period, on a 37% revenue rise. Steve Jobs & Co. continue to ride the success of the iPod -- with the newest podlet, the iPod Photo, unveiled on Oct. 26.
Meanwhile, a new name appeared in the Top 10. Harris (HRS) vaulted into the upper crust, thanks to a 12% surge in its stock price during October. Investors appeared to like the communications gear maker's purchase of privately held Encoda Systems, a designer of broadcast-media software. On Oct. 21, Harris also reported fiscal first-quarter earnings that modestly beat Street expectations. S&P equity analyst Ari Bensinger raised his fiscal 2005 earnings-per-share forecast to $2.79, from $2.45, and his 12-month target price on the stock to $61, though he maintains a hold opinion on the shares.
What about the worst performers? Here they are, year-to-date through Oct. 31:
IT 100 LAGGARDS
IT 100 RANK (5/30/04)
% CHG. FOR OCT.
% CHG. YTD
Advanced Semi. Eng.
The ranks of the bottom-dwellers were little changed on the month. Intel shares actually rallied somewhat in October, up 11%, but the stock still has a long way to go before it recoups its losses for the year.
Another Bottom 10 denizen wasn't so fortunate. Flash-memory outfit SanDisk (SNDK) suffered a 28% walloping in October. Its third-quarter earnings, released Oct. 14, disappointed the Street. Thomas Weisel analyst Eric Gomberg downgraded the shares to peer perform from outperform, citing slowing demand growth and the risk that future price cuts will continue to bite into SanDisk's profits -- until the industry recovers with new-demand growth drivers. Lexar Media (LEXR), another flash-memory maker, shared in the misery, slumping 19% on the month.
What's ahead for IT 100 companies in November? The earnings calendar is packed. Here are some of the IT 100 names expected to report results during the month:
FEATURED IT 100 EARNINGS RELEASES NOV. 2004
Sched. Rel. Date
Other upcoming events involving IT 100 companies: a (Webcast) of Advanced Micro Devices' (AMD) analyst meeting on Nov. 12 at 11 a.m. ET; Scientific-Atlanta's (SFA)(presentation) at the UBS Global Communications Conference on Nov. 17 at 11:30 a.m. ET; and a (Webcast ) of Cisco Systems' (CSCO) 2004 annual shareholders' meeting on Nov. 18 at 1 p.m. ET. Data compiled by Frederick Katzenberg
Andrews is managing editor of BusinessWeek Online's Investing channel