Tech leads European shares lower as Ericsson, ARM disappoint

Reuters - European shares snapped a three-day winning streak on Wednesday, with tech stocks hit by disappointing results from Ericsson and chip designer ARM Holdings, raising doubts about the sector's earnings.

Shares in telecoms equipment maker Ericsson slumped 6.1 percent, wiping the most points off the FTSEurofirst 300. The company missed its first-quarter sales and profit forecasts, blaming weak revenues from North America.

ARM Holdings, whose chip technology powers Apple's iPhone, fell 2.7 percent after lacklustre royalty revenue growth in the first quarter.

Both companies expect improvement later in the year, but the weak results contributed to a disappointing first-quarter earnings season for the tech sector so far.

All tech companies in the STOXX Europe 600 index that have reported through April 22 missed revenue estimates, StarMine data showed.

The STOXX Europe 600 tech index was down 1.4 percent on Wednesday.

"The market has quickly adjusted and understood that for European companies the Q1 reporting season will not be a particularly strong one," said Bernd Laux, an analyst at Kepler Cheuvreux. "I have relatively strong confidence in this forecast of improvement, but admittedly the risk is increasing due to the dependence on the Christmas business."

Overall, earnings news was mixed, a theme of the season so far. Some 53 percent of STOXX Europe 600 companies that have reported results have beaten or met expectations.

Valuations on the STOXX 600 are at their highest since 2005 following a rally since mid-2012, and investors are looking for profits to rebound to support elevated prices.

The top riser on Wednesday was Associated British Foods , which surged 8.8 percent after it met forecasts, gave a bullish outlook for full-year profits and got a boost from its Primark clothing business.

"Earnings has to be the major driver," said Veronika Pechlaner, who helps manage $13 billion of assets at Ashburton Investments. "Generally the market is quite wary of this reliance on earnings growth this year, and it could be quite volatile until the second half of the year," .

The pan-European FTSEurofirst 300 settled 0.6 percent lower at 1,338.84 points, after surging 1.3 percent on Tuesday. The Euro STOXX 50 fell 0.7 percent at 3,175.97 points.

The indexes extended losses in the afternoon after data showed new U.S. home sales tumbled more than expected in March, to an eight-month low, and the U.S. manufacturing sector expanded at a slightly slower-than-expected pace in April.