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Semiconductor share prices surged on Monday as investors looked ahead to earnings releases later this week from Intel, Advanced Micro Devices, and other vendors. However, analysts caution that while the market looks healthier, there is no hard evidence of a long-awaited recovery in hardware technology spending.

Hardware vendors Intel, AMD, IBM, Apple Computer, and Gateway will report their quarterly earnings results over the next two weeks. Those results will show, at least to some degree, whether IT spending is on the rise. The dominant PC vendors, Dell Computer and Hewlett-Packard, report earnings on a different schedule than most companies, and won't post quarterly results until August.

"We're seeing very faint signs of a recovery," said Ben Lynch, an analyst with Deutsche Bank Securities in New York. Some components vendors and resellers have reported that sales are picking up in the corporate sector, he said. But Lynch doesn't expect Intel to say anything during its earnings conference call on Tuesday that would indicate a broader recovery.

Ready, Set, Spend?

An unscientific survey of resellers by Thomas Wiesel Partners this quarter showed an increase in the number of companies that expect spending to increase during the second half of the year, said Eric Gomberg, senior research analyst for Thomas Wiesel in New York. Those resellers do not expect a return to the growth patterns of five years ago, but about two-thirds of respondents foresee an uptick in technology spending in 2003, as opposed to one-third of respondents who felt that way last quarter, he said.

The primary fuel for Monday's rally was an upgrade of Intel's stock by Merrill Lynch analyst Joe Osha, based in San Francisco. In an e-mailed research note, Osha upgraded Intel's stock from "neutral" to "buy," based on better expectations for gross margins and increased popularity of notebook PCs.

Intel will benefit from the notebook trend because of its successful launch of its Pentium M processor, which commands a higher price than other mobile chips, Osha wrote. The Santa Clara, California, company's stock rose $0.78, or 3.36 percent, to $24.12 in late-afternoon trading on the Nasdaq Monday.

Analysts surveyed by Thomson First Call expect Intel to report earnings per share of $0.13, and revenue of $6.7 billion. Intel said in June it expects second-quarter revenue between $6.6 billion and $6.8 billion.

Opteron's Effects

AMD does not have as strong a position in notebooks, and is looking to the server world for growth in the second half of the year. AMD introduced its Opteron processor in April, and is hoping that business customers will want that chip's ability to run both 32-bit and 64-bit applications at competitive performance levels.

However, the Sunnyvale, California, company's second-quarter results will probably be disappointing. AMD warned investors in June that it would fall $100 million short of the $715 million it had previously expected in second-quarter revenue, blaming a slow PC and cell phone market in China as a result of the SARS (severe acute respiratory syndrome) virus outbreak.

Analysts polled by Thomson First Call now expect AMD to lose $0.54 a share, on revenue of $614 million.

Since the Opteron launch was unlikely to have any real effect on second-quarter revenue, the shortfall shows how sensitive AMD is to market fluctuations in China, Lynch said. China makes up about 10 percent of the worldwide PC market, and any weakness there is bound to have an impact on the semiconductor industry, he said.

Intel has also noted that SARS could have an effect on its business, but analysts expect any effect to be minimal due to Intel's size. Analysts in Asia-Pacific have predicted a 6 percent decline in second-quarter PC sales in China, as well as a decrease in sales of cell phones that use flash memory from both Intel and AMD. But PC sales in China are expected to recover in the third quarter, according to IDC Asia-Pacific.

Apple and Gateway will also report earnings over the coming weeks as the two PC companies struggle to stay within sight of market share leaders Dell and HP. Both companies have looked to other products and markets in order to increase revenue.

Apple released a new version of its popular iPod portable music player along with the launch of its iTunes online music store in April. Gateway has embarked upon a dual-headed strategy to become more competitive among business customers with new servers and storage products, and to raise its profile among consumer electronics customers.