An Interpretation of the Day’s Trading and Big Tech Stocks Report Solid Earnings with Mixed Reaction

I believe Barry Hyman, equity market strategist at EKN Financial Services, gets it right when he says technology is “going to hold the key to the near term direction of the markets” (subscription required). 

And I think technology also explains today’s trading.  The market rallied strongly early in the day.  The Nasdaq was up as much as 15 points, to 2446, as late at 1:30pm EST.  The reason for this, in my opinion, was Texas Instrument’s “comforting”, in the words of Hyman, earnings report. 

The Wall Street Journal attributes the afternoon decline to an announcement by Energy Secretary Sam Bodman that President Bush will today announce a doubling of the Strategic Petroleum Reserve (SPR) which led to a rally in oil.  Higher oil prices increase businesses costs, reducing profits and therefore lead to lower stock prices. 

That’s surely right but I also think investors started looking forward to the big technology earnings reports scheduled after the bell.

Yahoo! (NASDAQ: YHOO) reported earnings of 16 cents per share, excluding tax benefits which beat analyst’s consensus estimates of 13 cents.  Revenue was up 13% and revenue excluding advertising commissions was up 15%.  Yahoo! traded down 1.7% during the day’s trading and was down a bit more in after hours trading at first.  However, after hours trading has now turned around and Yahoo! is up big – about $1.50 or 5.5%.  That bodes well for Yahoo and the market’s trading for tomorrow.

Also positive was Sun Microsystems (NASDAQ: SUNW) earnings report after the close.  Sun reported an excellent quarter with earnings of 7 cents per share compared with analysts expectations of 1 cent per share on a 7% revenue increase which also beat analyst expections.  The stock is up almost 50 cents and more than 8% in after hours trading. 

The only really negative tech report for the day was from Advanced Micro Devices (NASDAQ: AMD).  AMD is being hurt by its fierce competition with Intel.  Adjusting for charges related to an acquisition, AMD lost 4 cents per share while analysts were expecting a profit of 8 cents per.  Revenue held up okay.  Gross margins were the real story, falling to 40% from 52% last quarter and 57% a year ago.  This is due to the price competition with Intel.  The shares were down almost a buck and about 5% in after hours trading. 

Prior to the open, EMC reported a solid quarter.  Excluding one time charges EMC beat analyst estimates by a penny earning 17 cents per share.  Revenue also slightly beat analyst’s forecasts.  Bank of America analyst Kieth Bachman called the guidance going forward “solid if unspectacular”.  EMC had a solid trading day, up 8 cents or .59%, on strong volume.

The other tech company I was watching today, Tellabs (NASDAQ: TLAB), reported 7 cents per share in earnings, beneath analysts estimate of 9 cents per, and also fell a bit short on revenue.  Tellabs traded down 7 cents or .7% on heavy volume. 

Overall, I think that today’s tech earnings reports were strong.  The two big ones, Yahoo! and EMC, were solid.  There’s no cause for panic in either of their reports and the stocks are both trading to the upside.  Advanced Micro Devices was disappointing, but that seems specific to its competition with Intel.  Its report was also offset by a very positive one by Sun Micro.  Tellabs was mildly disappointing but nothing to worry too much about. 

I expect the Nasdaq to trade to the upside tomorrow based on these earnings reports.

The big one for tomorrow is Qualcomm’s earnings report, to be released after the close.