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Last updated: December 4, 2012 11:05 pm
A string of disappointing earnings guidance has left the technology sector among the worst-performing industry groups on the S&P 500 this quarter.
The S&P 500 information technology index has lost 6.4 per cent since the final quarter started, compared with a 2.3 per cent decline for the broader benchmark over the same period.
Having briefly ranked as the best-performing sector earlier this year, IT stocks have hit their current low mark as a result of slowing global growth, particularly in Europe and China, which has prompted downbeat earnings guidance from a number of high-profile companies.
Tobias Levkovich, chief US equity strategist at Citigroup, said: “Concerns about economic activity not being as robust as many had anticipated from China and Europe have weighed on the sector.”
The poor performance has been underpinned by weakness in Apple shares, the world’s largest company by market value and the heaviest-weighted US equity on the S&P 500. The iPhone and iPad maker in October published an outlook that fell well below market forecasts and its shares have declined 13.7 per cent in the quarter.
Apple now faces its first year-on-year decline in earnings per share since the second quarter of 2003, according to Bloomberg data.
Other household names to have issued negative guidance for the quarter include Ebay, Juniper Networks, Texas Instruments and Xerox. Of the 32 technology companies to provide guidance so far for this quarter, 29 have said earnings per share will fall below forecasts, according to FactSet.
At present, that represents the highest level of pessimism for the sector’s quarterly earnings since the market research company began tracking the data six years ago.
“Many technology stocks that investors focus on have really turned into large-cap mature companies,” said Oliver Pursche, portfolio manager at Gary Goldberg Financial Services.
“That’s a very different picture to what investors typically think about tech companies,” he added, citing large dividend payouts from Apple and Intel.
One notable exception has been Cisco, the US network equipment maker and a harbinger of economic activity, which hailed a recovery in US demand and issued a surprisingly upbeat outlook in its latest results.
The poor guidance comes ahead of what is usually a strong part of the year for many technology companies as holiday shopping moves into full swing, according to Colin Gillis, tech analyst at BGC Partners.
“Management always has an incentive to be conservative when issuing guidance, but given the turmoil in Europe and slow growth in the US it’s worth paying attention to what they are saying,” he said.
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