STOCKWATCH: Tech stocks soar while rest of US market goes Bush
STOCKWATCH: Tech stocks soar while rest of US market goes Bush
There's been a surge in tech stocks in the US following higher than expected results from data storage makers EMC, Storage Technology (StorageTek) and McData, despite the unveiling of US President Bush's economic stimulus package.
Technology stocks gained after better-than-expected revenue outlooks from data storage makers EMC, StorageTek and McData stirred talk of a turnaround in the sector. Yet technology stocks were the exception, as the broader market fell a day after details of US President George W. Bush's US$670 billion plan to stimulate the economy, which includes a proposal to end federal taxes on stock dividends, became available.
On Tuesday Bush said eliminating taxes on dividends - a portion of a company's earnings paid in cash or stock to shareholders - would correct an injustice in the US tax code, namely that dividends are taxed once at the corporate level, when companies report profits, and again as income to shareholders.
The preliminary earnings reports from all three storage makers indicates corporate demand for data storage technology strengthened during the fourth quarter, possibly signaling the dawn of a longed-for upsurge in sector sales. Yet expectations for the fourth quarter were so low it is unclear whether the better-than-expected fourth quarter 2002 is due to this, or whether there's a trend from here.
McData was one of the first companies to boost analyst speculation that the fourth quarter was strong when it revised its fourth quarter guidance to show a colossal 31 per cent sequential growth.
On Monday in the US, McData said it expected to report earnings of 6 cents to 8 cents a share for the fourth quarter, far above analyst expectations for a break-even quarter. Shares of McData closed Tuesday up 1 cent at US$9.83 in Nasdaq trading. McData expects fourth-quarter revenue to be between US$104 million to US$106 million, up by at least 11 per cent on the same period last year.
McData said its sales spurt was caused by the success of the new mid-range and high-end SAN switching products, the Sphereon 4500 and Intrepid 6000 range which shipped in October as part of McData's attack on rival Brocade's mid-range stronghold.
McData CEO John Kelley said in a statement that while the fourth quarter is usually the strongest sales quarter of the year, the strong sales could only have been made at the expense of McData's rivals.
A recovery by McData's largest customer, EMC may have contributed to the sales increase. EMC posted strong preliminary results for the period, ascribing the results to more customer demand and sales of its less expensive systems. EMC said it will report revenue of US$1.47 billion, above an expected US$1.276 billion. The news pushed shares of EMC up 9.6 per cent, or 67 cents, to close at US$7.47 on the New York Stock Exchange in Tuesday trading.
StorageTek also said its fourth-quarter earnings would exceed expectations due to strong growth across all product lines. The maker of storage systems said revenue in the quarter from product sales will increase 25 per cent from the third quarter, while service revenue is expected to be about US$200 million. Based on third-quarter product sales revenue of US$307.3 million, the company expects to report fourth quarter product sales revenue of about US$384.1 million.