Are mid-quarter updates overkill--or the wave of the future?

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Are mid-quarter updates overkill--or the wave of the future?

Larry Dignan
Department Editor, CNET Investor
Monday, September 10, 2001

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Tech companies sure are chatty these days.

Tech giants such as Sun Microsystems, Altera, Intel, and Novellus Systems are increasingly using mid-quarter conference calls, which barely existed a few quarters ago, to tell customers, investors and analysts about their businesses, and possibly diminishing the importance of their quarterly conference calls. Last week, Intel gave its second mid-quarter update to tell financial analysts how to tweak their estimates for the quarter.

Never mind that many companies don't change their outlooks too much on these calls. For example, Rambus was happy to say its outlook is about the same as it was half a quarter ago. What's next? Monthly conference calls? Hourly business updates?

ANALYSTS SAID they wouldn't be surprised if tech companies go overboard with their financial "guidance," benchmarks Wall Street uses to guess what a company will earn. Put it together and it's a lot of short-term talk that may not add up to much in the long run.

Why the sudden barrage of conference calls? One reason is tech companies can't predict their business prospects more than a few weeks at a time--so-called "visibility" is low. Tech companies also don't want analysts speculating about how their business prospects are shaping up and beating up their already-weak stock prices.

A bigger reason, however, is Regulation Fair Disclosure, a Securities and Exchange Commission rule mandating that companies disseminate information to individual and institutional clients at the same time. RegFD isn't a year old yet, but most companies are beginning to feel their way through the new rules.

"Our decision to host a mid-quarter call is largely a RegFD-driven thing," said Howard High, a spokesman for Intel. "We're closely watched and we'd rather have a conference call than have anyone speculate about the quarter."

BUT MORE COMMENTS from tech companies may not necessarily give a good view of the sector. Sun, which has been holding mid-quarter conference calls since 1997, indicated that its business was considerably worse, Altera maintained the status quo, and Novellus said the chip-equipment business remains weak with orders expected to fall.

Cisco Systems Chief Executive John Chambers frequently makes comments to the press to give frequent updates about the company's business. The company recently noted that business stabilized for a month. "It's nice to see the company made a month," quipped Sun Microsystems President Ed Zander Wednesday at the Salomon Smith Barney investment conference, adding that he'll take good news from wherever he can get it.

Chuck Hill, director of research for First Call, said the movement toward frequent business updates is a direct result of RegFD. Many of these calls would have been quiet nudges to analysts in the past.

FOR EXAMPLE, if a company is about to miss estimates by a penny, executives have to go through a whole "should we say something, or not" debate, Hill said. By having a regularly scheduled mid-quarter conference call, tech companies can cut their outlooks and the markets usually take it in stride, he said.

"If it's a scheduled call, it's just not viewed as badly," Hill said.

Brent Bracelin, an analyst with Pacific Crest Securities, said the more information a company can give, the better. "It's imperative that companies hold these calls, especially now," said Bracelin, referring to the tough economic times. "Another data point is always helpful."

"It's a growing trend that makes sense," said Dean Krogman, a vice president for Financial Executives International, an investor relations group. "We encourage companies to have more conference calls."

Will these incremental conference calls replace the hullabaloo around quarterly meetings with Wall Street? Analysts will still tune in, but frequent updates may diminish the anticipation around quarterly conference calls. The quarterly earnings conference calls will remain loaded with financial details, but the outlook for the future may suffer.

"There will be mid-quarter calls and even monthly calls," said Hill. "Incremental guidance is the wave of the future."

Are more frequent conference calls the answer? TalkBack to me.

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