By Noel Randewich
SAN FRANCISCO (Reuters) - Top technology companies warrant a fresh look as earnings season hits full swing next week after their shares were hard hit by sputtering PC sales and supply issues following Japan's largest-ever earthquake.
Fund managers have sold down sector bellwethers since the March 11 disaster, fearing worse-than-expected damage to margins as they battle to secure critical components from a country that supplies 14 percent of the world's electronics.
Plus sliding PC sales -- blamed on an explosion in powerful tablet computers like Apple Inc's <AAPL.O> iPad and smartphones -- have triggered a shift away from entrenched PC players.
Now, some argue major players such as Intel <INTC.O>, Cisco <CSCO.O> and Hewlett-Packard <HPQ.N> present attractive bargains despite uncertainty about how much the sector will be affected by Japan over the next few months.
Intel, HP, Dell and Microsoft Corp <MSFT.O> are trading at less than 10 times forward earnings versus the market's 13.5 average. All have underperformed the market in past weeks.
"Tech in general, especially things related to the PC, has not had strong a strong bid to it as of late," said Pat Becker Jr., a portfolio manager at Becker Capital Management.
But "if you look at corporate profits, these companies are putting up peak margins or close to it and are printing cash."
Since the quake, Intel's stock has lost 5 percent, HP is off 1 percent, and Microsoft has added just 1 percent. That compares with a 1.5 percent gain for the S&P 500 Index.
Even Apple -- hurt by a rebalancing of the Nasdaq 100 and fears of supply hiccups for components like memory chips and touchscreen glass -- has shed 3 percent and now trades at 13 times forward earnings.
Analysts say the Cupertino, California, company remains a bargain despite gaining 38 percent over the past 12 months, with the highest projected earnings growth among major tech stocks yet still valued lower than Google Inc <GOOG.O>.
For a table comparing Big Tech, please click http://link.reuters.com/jyh98r.
Overall, the U.S. technology sector trades at about 13.5 times expected earnings, about the same as the S&P 500 Index, according to StarMine SmartEstimates, which places more weight on recent forecasts by top-rated analysts.
Google Inc reports on Thursday, kicking off a quarterly results season that will be picked apart by investors anxious about the fallout from Japan.
World PC sales unexpectedly dipped 1.1 percent in the first quarter, according to research house Gartner -- the first drop in two years.
With the iPad dulling demand, IHS iSuppli expects PC sales to gain 11 percent this year, versus 2010's 14 percent.
But some say pessimism about the PC industry is exaggerated and ignores a corporate market where the tower and monitor still reign supreme, and where loosening budgets should spur a replacement cycle this year.
"Technology is going to be a leadership space for the next year," said Michael Yoshikami, CEO of YCMNET Advisors, which holds a number of technology stocks. "We are going to see tech upgrades sooner rather than later."
Wall Street has priced in conservative forecasts also due to the still-unclear impact of Japan's crisis. But Wall Street may see volatile swings depending on executives' forecasts.
Japan accounts for 14 percent of the world's electronics manufacturing, and the disaster damaged chip-making equipment and interrupted production.
"While we think the results for the first quarter will be good, we're more concerned about management commentary -- talking down numbers, talking down expectations, perhaps using Japan as an excuse," said Tim Ghriskey, chief investment officer at Solaris Asset Management. "Some investors will see right through that and see there's an opportunity."
The consumer space is attractive, portfolio managers say. People increasingly see select gadgets as indispensable, which helps tech companies weather the impact of rising gasoline prices and weak jobs growth.
"Some types of consumer electronics have moved into the category of needs, not want: in particular smartphones," said Mike Shinnick, a portfolio manager at Wasatch Advisors Inc in Indiana. "Downloading music, watching videos, that's what kids do for fun. They're not asking for a new baseball mitt."
But semiconductor investing still requires caution. Japan's role as supplier of a fifth of the world's chips has caught Wall Street's attention. Texas Instruments on Monday will be the first major U.S. chip player to report earnings, and will probably explain how much revenue it expects to lose after it was forced to temporarily close two factories in Japan.
Intel follows Tuesday and is expected to post revenue below target due to weak notebook sales, especially after a flawed chipset interrupted the launch of its newest processors.
But underscoring the value some see in the industry, Texas Instruments agreed to buy rival National Semiconductor <NSM.N> for $6.5 billion -- a 78 percent premium.
"Tech doesn't get much respect if you look at the multiples. Arguably it could still get more respect from investors," said Sterne Agee analyst Shaw Wu.
Other investors predict a slightly inflated March quarter due to over-stocking. Seagate Technology <STX.O> gave better- than-expected guidance for the January-March quarter, suggesting PC makers are securing more parts than they need.
As investors hunt for bargains, analysts also warn about potentially overpriced items. Google, chipmaker Nvidia <NVDA.O> and Internet content delivery company Akamai Technologies <AKAM.O> carry more expensive multiples than the market average.
"With a lot of components you're going see some artificial inflation of demand in the March quarter because of the Japanese over-ordering phenomenon," ThinkEquity analyst Rajesh Ghal warned.
(Additional reporting by Bill Rigby in Seattle, editing by Edwin Chan and Maureen Bavdek)