NEW YORK (CNNMoney) -- Sure, it's still early in the first quarter earnings "season." But so far, tech stocks are not living up to their potential.
Google's (GOOG, Fortune 500) earnings missed expectations by a few pennies per share last week, and the stock plunged 8%.
Chip leader Texas Instruments (TXN, Fortune 500) disappointed after the closing bell Monday. Profits were below forecasts as the Japan earthquake took its toll on TI factories there. Guidance for the second quarter wasn't too inspiring either.
And hard drive maker Seagate (STX) reported a bigger-than-expected drop in quarterly profits Tuesday morning. Both stocks fell Tuesday.
There's even a growing sense of ennui about Apple (AAPL, Fortune 500). The iEverything maker is expected to report spectacular results after the bell Wednesday. Analysts are forecasting a more than 60% jump in earnings per share and a nearly 75% increase in sales.
If history is any guide, Apple will probably blow away those estimates by a wide margin. Yet, shares of Apple are down 4% since the start of April.
What gives? As is often the case with tech, the group may be simply suffering from high expectations.
Google, for example, can only be considered a letdown in a relative sense. Net income was up 17% from last year. Sales surged 27%. "With Google, it's hard to find fault with their revenue growth. It was just expenses ramping up and hurting earnings," said John Lutz, senior research analyst with Frost Investment Advisors in San Antonio. "That might not wind up being the case with many other tech companies."
Lutz said his firm owns stakes in Google, software giant Oracle and wireless chip leader Qualcomm. So let's not start playing a funeral dirge for Google -- or the entire sector -- just yet.
According to data from FactSet Research, analysts are expecting year-over-year revenue growth of 12% for the tech sector in the first quarter. The only two sectors that are predicted to post higher growth rates are energy and materials.
Investors will get a better sense of how tech did in the first quarter (and more importantly how it may perform for the rest of the year) when a trio of top techs report after the bell Tuesday.
Dow components Intel and IBM (IBM, Fortune 500) are slated to release their results, as is struggling online media firm Yahoo.
Yahoo (YHOO, Fortune 500), a company that has confounded investors by somehow remaining a turnaround story for more than five years, is expected to report yet another drop in sales and profits from a year ago.
But analysts expect decent growth for Intel (INTC, Fortune 500), despite concerns about sluggish demand for personal computers as tablets eat into PC sales. Big Blue, thanks to a weak dollar and a diversified mix of tech businesses, is also expected to post solid sales and earnings gains.
So despite some hiccups, tech earnings are still likely to be fairly strong. Investors should also not lose sight of the fact that merger activity in tech has picked up, and that this trend is likely to continue.
In just the past few weeks, TI announced it was buying chip rival National Semiconductor (NSM) while eBay (EBAY, Fortune 500) agreed to scoop up GSI Commerce (GSIC). Both deals were done with hefty takeover premiums.
Finally, most of the larger techs are trading at incredibly reasonable valuations.
Intel trades for less than 10 times 2011 earnings estimates while IBM is valued at only 12.5 times 2011 earnings estimates. Apple and Google both trade at P/E ratios of about 15.
If there's a tech bubble anywhere, it's with private hotshots Facebook and Groupon and smaller public dot-comes like Netflix (NFLX) and OpenTable (OPEN). The megacap techs look like screaming bargains by comparison.
-- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
In exclusive interview, former cast members say they have been cheated out of millions of dollars by CBS. More
Obama is focusing on a compelling argument for debt reduction. More
Earnings from Google and Texas Instruments have disappointed investors. But don't declare the tech sector dead just yet. More
PixelOptics' high-tech lenses toggle between settings for distance vision and close-up reading More
Where do newlyweds want to go? Wedding site TheKnot.com gave us the inside scoop on the the most frequented romantic destinations. More
Screen name (Select one with 3-12 characters; Numbers and letters only)
Enter your e-mail address below and we will send you an e-mail with a link and code to reset your password.
Already have the reset code?
Reset code
New password
Password
Forgot password?
Not a member yet?
Screen name
Password
Type what you see in the grey box
CNNMoney will use the information you submit in a manner consistent with our Privacy Policy. By clicking on "sign up" you agree with CNNMoney's Terms of Service and Privacy Policy and consent to the collection, storage and use of this information in the U.S. subject to U.S. laws and regulations. (learn more)
This service is temporarily unavailable. Please try again soon.
Thanks!
Please check your e-mail and click the link to confirm your membership. Then, you'll be ready to participate in all activities and conversations on our site.
Go to your Profile page
Be the first to know when there is breaking financial news with timely alerts delivered straight to your inbox.
Fortune's Philip Elmer-DeWitt brings you Mac news from outside the reality distortion field.
Fortune columnist Anne Fisher answers your career-related questions.
Money Magazine's Walter Updegrave answers readers' toughest financial questions.
Read Full Article »