As the third-quarter earnings season kicks off, analysts are not expecting major surprises from Israeli hi-tech companies.
"What we saw underscored during the quarter was that it is becoming increasingly difficult to differentiate Israeli tech companies as a separate market, as both US and Israeli markets reacted with a relative calm to the war in Lebanon," Yair Reiner, an analyst at CIBC World Markets said. "Whereas before we spoke about the Israeli discount, today you don't have that anymore."
As such, Reiner said company earnings will reflect trends in their respective sectors more than what is happening in the Israeli tech environment. He singled out the communications software market, with Israeli players such as Amdocs, Nice Systems and Comverse Technology, as one which will show strong results for the quarter.
"Underlying trends in the commsoft space appear healthy as consolidation continues to drive a ramping of carriers IT & mobile data infrastructure," Reiner wrote in a note earlier in the week.
Going against this trend, CIBC on Thursday lowered its estimates for telecommunications equipment provider TTI Telecom as consolidations in the third quarter appear to have caused postponement of several projects in the US .
Beyond the communications software companies, Reiner said he expects Given Technologies, which makes a camera in capsule that can diagnose digestive ailments, to have a quarter showing it is back on its feet. Other companies in his space that have been struggling, optical lens manufacturer Shamir Optical Industry and software company Scopus Technology were likely to continue to do so, he said.
While CIBC said it expects solid third and fourth quarters from Sandisk, a maker of flash data storage products, it lowered its longer term outlook for the company as NAND prices were expected to fall due to supply increases.
Meanwhile, Amdocs and Nice were stocks that RBC Capital Markets analyst Daniel Meron highlighted with strong forecasted earnings for the quarter.
"We are not expecting any surprises in general, certainly not on the downside," Meron said. "Any bad news is already out there so we generally expect our numbers and guidance to come in-line or on the slight upside to estimates."
Amdocs earnings, which are scheduled to be reported on Wednesday, also are expected to be in-line or slightly above estimates, according to Merrill Lynch. The investment house expressed concerns, however, that the billing software company may show slow backlog growth.
In separate notes, analysts from Merrill said they expect in-line quarters from both Audiocodes and Radware.
Meanwhile, in a note on third-quarter prospects for communications equipment companies, RBC's Meron named NDS as his favorite pick for solid fundamentals.
"We believe current levels offer a good entry point," he wrote.
He added that sentiment and fundamentals about the company were mismatched, as he believes they were at semiconductor company DSPG. Indications for DSPG, he said, were on track for results "a tad ahead of street estimates." For ECI Telecom, he projects in-line earnings.
Looking at the wireless Internet sector, Meron said he is on the sidelines about Alvarion as the company can expect a rise in competition from major vendors such as Nokia, Alcatel and Motorola, as interest in WiMax increases.