Hopes are evaporating that leading technology companies will offer a safe harbor this year from the economic storms swirling across Europe, Asia and the United States.
Investors should brace for some of the biggest names in US software and hardware -- from Microsoft and IBM to Intel -- to disappoint when Big Tech begins reporting quarterly earnings next week, analysts said.
The trio's shares are all in the red for July, in the wake of earnings warnings over the past week from smaller peers, including Advanced Micro Devices, Applied Materials and Informatica.
Corporate IT budgets have historically proved more resilient to worsening macroeconomic conditions than other kinds of spending, because businesses invest on the assumption that technology boosts productivity and helps save them costs over the long term.
But investors may have misjudged the depth of the European crisis, and with once-reliable-as-clockwork Chinese growth waning, demand in other emerging markets has not picked up enough of the slack.
The profit warnings could signal a broader pullback in orders, which means that Wall Street's earnings projections now appear over-optimistic to some outside experts.
"I don't think the companies or the market anticipated the kind of slowdown like the one we are going to see in the second half," said Fred Hickey, editor of the High-Tech Strategist Newsletter for investors. "Companies haven't had a chance to adjust estimates yet and they will. That's coming," said Hickey, who has been following the tech industry since the 1980s.
Asia beaten down, too
The sense of impending gloom is not confined to the United States.
Samsung Electronics, Asia's top-earning tech company and the world's leading maker of smartphones, TVs and memory chips, has predicted record quarterly profit of $5.9 billion for April-June -- but its stock has slumped more than a fifth since May on concerns about the broader outlook for chip demand and the impact of the euro zone crisis on sales of its TVs and home appliances.
Since mid-June, analysts have cut by more than a quarter their earnings forecasts for LG Electronics, South Korea's other tech heavyweight, according to Thomson Reuters Starmine SmartEstimates, which accords higher weight to the timeliest forecasts from historically more accurate analysts.
Shares of China's Lenovo, the world's No.2 PC maker behind Hewlett Packard, have retreated to 5-month lows with brokers downgrading their outlooks for the company as global economic weakness damps demand for personal computers.
In Japan, a fast fading powerhouse in consumer electronics and technological innovation, shares in Sony and Panasonic are mired near more than three-decade lows as investors fret over their ability to regain profitability in today's hostile macro environment and against tough competition from nimbler rivals in South Korea and Taiwan.
Shiny Apple
The one bright spot is Apple, which still has many fans on Wall Street. The iPhone and iPadmaker is one of the few major tech stocks to have gained in July, up 4 per cent.
Apple has beaten analysts' earnings forecasts in seven of the past eight quarters by at least 12 per cent. Last quarter, it reported earnings 22.5 per cent above Wall Street estimates. Its performance has propped up the entire sector and analysts expect a new iPhone this year to keep that up.
Apple is likely to report earnings of more than 1 per cent above the Street's average forecast, according to StarMine SmartEstimates. In contrast, Microsoft, which is preparing to launch theWindows 8 operating system and its first tablet computers, may report earnings 0.7 per cent below the average.
"Guidance could turn out to be very conservative given momentum with new Macs, a potential iPad mini and ongoing success with the new iPad," Barclays analyst Ben Reitzes said in a research note. Apple said the latest iPad will hit Chinese store shelves on July 20.
Apple aside, market watchers expect the economic malaise will broadly hit technology companies in the second half of the year, even at firms that managed to squeak by in the second quarter and avoid issuing preliminary earnings warnings.
Over the past three months, analysts have largely held on to their second-quarter earnings forecasts for technology and telecommunications companies, while cutting estimates in other sectors. Now many may have to make up for that oversight.
An IDC survey of chief information officers (CIOs) at about 250 US companies conducted two weeks ago found, on average, that they expected their budgets to decrease for the first time since early 2009.
"There is this sense among CIOs that things have slowed down and they are going to have to think about ways of cutting back," said IDC analyst Stephen Minton.
Analysts currently forecast companies in the S&P 500 Index will report profit growth of 5.8 per cent in the second quarter, with technology earnings growing at 7.9 per cent, according to Thomson Reuters data.