Wall Street's optimism in last week's preview about the earnings of tech stocks wasn't misplaced, as there were many more positive surprises than negative ones among the stocks we looked at. This week will bring plenty more data for investors in and watchers of the sector to mull over. Apple Inc. (NASDAQ: AAPL), AT&T Inc. (NYSE: T), and Microsoft Corp. (NASDAQ: MSFT), for example, are expected by analysts surveyed by Thomson Financial to post modest earnings gains from a year ago, to $1.11 per share (on $8.1 billion in sales), $0.72 per share (on $31.3 billion in sales), and $0.47 per share (on $14.8 billion in sales) respectively. All three of these companies ended the week closer to their 52-week lows than highs, and analysts on average consider them each a buy.

Here's a look at some of the week's biggest expected earnings gainers and decliners in the sector:

• Baidu.com Inc. (NASDAQ: BIDU): $1.25 per share (+44.0%) on revenues of $134.7 million (+103.2%)
• Broadcom Corp. (NASDAQ: BRCM): $0.44 per share (+38.6%) on revenues of $1.3 billion (+33.8%)
• QLogic Corp. (NASDAQ: QLGC): $0.31 per share (+29.0%) on revenues of $170.0 million (+21.2%)
• FLIR Systems Inc. (NASDAQ: FLIR): $0.32 per share (+28.1%) on revenues of $275.2 million (+44.0%)
• Juniper Networks Inc. (NASDAQ: JNPR): $0.30 per share (+26.7%) on revenues of $927.4 million (+26.2%)
• Waters Corp. (NYSE: WAT): $0.75 per share (+17.3%) on revenues of $391.6 million (+11.1%)
• Flextronics International Ltd. (NASDAQ: FLEX): $0.29 per share (+17.2%) on revenues of $8.7 billion (+57.3%)
• EMC Corp. (NYSE: EMC): $0.19 per share (+10.5%) on revenues of $3.7 billion (+12.9%)

Analyst upgrades:

• UBS believes US airlines estimates are too low and will move higher. The firm upgraded AirTran (NYSE: AAI), AMR Corp (NYSE: AMR), Continental (NYSE: CAL), Delta (NYSE: DAL) and Northwest (NYSE: NWA) to Buy from Neutral and JetBlue (NASDAQ: JBLU) to Neutral from Sell.
  
• JMP Securities upgraded DealerTrack (NASDAQ: TRAK) to OUtperform from Market Perform as they believe 2H08 guidance represents a floor and that 2009 estimates are achievable, among other reasons.
• Potash (NYSE: POT) and Mosaic (NYSE: MOS) were raised to Buy from Hold at Soleil.
  
• Argus upgraded Seagate (NYSE: STX) to Buy from Hold on Friday.

Analyst downgrades:

• Jefferies downgraded Citrix Systems (NASDAQ: CTXS) to Underperform from Hold as they do not see a catalyst for the company to grow into 2009 consensus estimates. The firm lowered their target price to $25 from $32.
  
• Citigroup said following Lehman's (NYSE: LEH) bankruptcy, they expect a distressed-sale of American International's (NYSE: AIG) MBS portfolio, resulting in the worst quarter yet for the company. Shares were cut to Hold from Buy.
• D.R. Horton (NYSE: DHI) was downgraded to Sell from Hold and Pulte Homes (NYSE: PHM) was downgraded to Hold from Sell at Citigroup.
  
• Merrill downgraded Goldman Sachs (NYSE: GS) to Neutral from Buy and JP Morgan (NYSE: JPM) to Underperform from Neutral.

Before the bell: Futures lower ahead of data, earnings, despite Intel

Sun Microsystems (NASDAQ: JAVA) shares are trading nearly 8% higher in premarket action after announcing earnings forecast that was better analysts had expected.

Seagate (NYSE: STX) shares, however, dropped over 9% in after-hours trading Tuesday, after it forecast first quarter earnings below Street's estimates.

Sprint Nextel (NYSE: S) saw its shares jump 9.44% Tuesday. Reports say that SK Telecom is in talks with Sprint over potential deals.

Cleveland-Cliffs (NYSE: CLF) said it's going to buy Alpha Natural (NYSE: ANR) for $10 billion in cash and stock, putting a 35% premium on Alpha's stock. ANR shares are trading 27% higher in premarket action. CLF's, 4.5% lower.

When Seagate Technology (NYSE: STX) made the claim recently that it holds a decent amount of patents related to the solid-state drive (SSD), there were probably some global tech firms cautiously fidgeting in their collective chairs. You see, Seagate is the world's largest hard drive company. Hard drives enable, well, everything from that laptop PC to the TiVo box at home to the classic iPod.

The deal is this, though: most hard drives use spinning platters that really do become a bottleneck in performance within the products those drives are located in. Samsung and other companies have been championing SSDs as a way to remove slower hard drives from products and replace them with computer chip storage devices that have no moving parts, don't heat up as much, use less power and are much faster in performance. That is, unless Seagate has patent claims to much of this platform, which is what it's claiming after buying a patent portfolio from Hewlett-Packard Corp. (NYSE: HPQ) years ago.

The first company under the gun is STEC, a manufacturer of SSDs. But the question of the hour is this: can one company actually patent the concept of an SSD, now that the technology itself is poised to start competing more heavily with traditional hard drive in everything from laptop PCs to set-top digital video recorders? Hard drives enable the growth of the PC market every quarter as well as a whole slew of other devices consumer snap up like hotcakes. Could Seagate own this universe shortly? It's being mum on its intentions, but if the company wants to become nasty about protecting its patents, it could become an even more powerful force in the storage industry than it already is.

The markets were able to shake everything off today after techs and financials delivered more hope than economics could deliver in fear. Housing construction gave levels not seen in more than 15-years and the Fed's Beige Book showed that the economy deteriorated further with weak spending, uncertainty, housing and credit woes. Even $115/barrel oil today didn't spook those hoping for a recovery. Even multi-year inflation in China and Europe didn't spook investors. Below are today's unofficial closing levels for US index averages:

• DJIA 12,619.27 (+256.80; +2.08%)
• S&P500 1,364.69 (+30.26; +2.27%)
• NASDAQ 2,350.11 (+64.07; +2.80%)
• 10YR-TBOND 3.696% (+0.126%)
• 52-WEEK LOWS
• TOP 10 ANALYST CALLS.

CV Therapeutics, Inc. (NASDAQ: CVTX) was a major gainer today after the company secured up to $185 million in financing from TPG-Axon. Shares were up over 17% to $8.76.

MAJOR PAPERS:

• A newly published report by Standard & Poor's said that the performance of organizations such as Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, and Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, could directly affect the U.S. economy and the country's credit rating, especially if they have to be rescued by the government, according to the Wall Street Journal's "Credit Markets" column.
• Seagate Technology LLC (NYSE: STX), a hard drive maker, filed a patent infringement suit in San Francisco against STEC Inc (NASDAQ: STEC) over four patents related to technology used to store data on computer chips, the Wall Street Journal reported.
• The Financial Times reported that Citigroup Incorporated (NYSE: C) is allowing private equity groups such as Apollo, The Blackstone Group LP (NYSE: BX) and TPG that are bidding for up to $12B of its leveraged loans to 'cherry-pick' from a wide range of assets with different credit ratings and prices.

WEB SITES:

• According to analysts, Reuters reported that technology industry leaders that include International Business Machines Corporation (NYSE: IBM), Oracle Corporation (NASDAQ: ORCL), Cisco Systems Inc (NASDAQ: CSCO) and Hewlett-Packard Company (NYSE: HPQ) are among the companies with large cash reserves that could be used to fund acquisitions.

MOST NOTEWORTHY: Seagate, Nortel Networks and Ann Taylor were today's noteworthy downgrades:

• Thomas Weisel downgraded Seagate (NYSE: STX) to Market Weight from Overweight as they believe the company's growth will be more muted given high existing market share and overall industry growth.
  
• Baird downgraded Nortel (NYSE: NT) to Neutral from Outperform citing checks that indicate deteriorating US Enterprise sales in the last few weeks of Q1. The firm now expects companies to guide flat QoQ instead of up and to make cautious 2H08 comments.
  
• Ann Taylor (NYSE: ANN) was cut to Neutral from Buy at Piper to reflect concerns over the LOFT division as well as consumer spending.

OTHER DOWNGRADES:

• Citigroup lowered TJX Cos (NYSE: TJX) to Hold from Buy.
  
• WestLB downgraded to Hold from Add Novartis (NYSE: NVS).
  
• Hartford Financial (NYSE: HIG) was downgraded to Neutral from Buy at UBS.

MOST NOTEWORTHY: Motorola, California Pizza, and Seagate were today's noteworthy downgrades:

• Banc of America downgraded shares of Motorola (NYSE: MOT) to Neutral from Buy, despite believing the split into two businesses could ultimately unlock value, as they see few catalysts over the next year to lift shares. Banc of America also sees risk to Q1 earnings and lowered their target to $11 from $15.
  
• Friedman Billings lowered California Pizza Kitchen (NASDAQ: CPKI) to Market Perform from Outperform citing sluggish trends in its core markets.
  
• Seagate (NYSE: STX) was cut to Neutral from Outperform at Baird, citing weakening industry conditions throughout the month of March.

OTHER DOWNGRADES:

• Goldman lowered the Communications Tech sector to Neutral from Attractive, and also downgraded Juniper Networks (NASDAQ: JNPR) and Starent Networks (NASDAQ: STAR) to Neutral from Buy, and Aruba Networks (NASDAQ: ARUN) to Sell from Neutral.

Hitachi (NYSE: HIT) made a bold move in 2002 when it purchased IBM (NYSE: IBM)'s hard drive business for $2 billion. At the time, the hard drive industry was in a profit funk and IBM was looking to exit the hardware business. It eventually sold its PC division to Chinese company Lenovo to complete its exit from hardware. Five years later, Hitachi probably wishes it had never gotten into hard drives.

Hitachi Global Storage Technologies, the division responsible for hard drive storage, has consistently lost money in the last two years as competitors Seagate Technology (NYSE: STX) and Western Digital (NYSE: WDC) have really taken advantage of home entertainment, laptop and TiVo-like devices that are infiltrating homes like stormtroopers. Sales have been very nice for both companies, which are profitable even after storage was considered a boring and dead field around the year 2000. Hitachi, though, has had no such luck. Instead of selling its hard drive division to a private equity firm, the Japanese conglomerate may be looking to Japanese competitors Toshiba and Fujitsu as partners to form a new hard drive company.

Silver Lake Partners, which helped take Seagate private in 2000 only to launch it as a public company a few years later, has reportedly been in talks with Hitachi. Nothing concrete was produced, and Hitachi even said it does not want to sell the division. If Hitachi is too steeped in Japanese culture to sell to outsiders, then it has to do something -- but its options may remain limited. And, Toshiba and Fujitsu -- both of which have small hard drive businesses -- may not want to take more risk in the storage business currently dominated by Seagate and Western Digital. Hitachi shareholders, hold no fear; most likely, some kind of decision will come before April 1 of this year.

MOST NOTEWORTHY: Bionovo, Constant Contact, Senorx, and RemoteMDx were today's noteworthy initiations:

• Merriman initiated Bionovo Inc (NASDAQ: BNVI), with a Buy rating, as they believe shares are undervalued given the company's development pipeline and related intellectual property.
• Constant Contact Inc (NASDAQ: CTCT) was initiated with a Market Weight rating at Thomas Weisel. The company was also initiated with a Sector Outperformer and $30 target at CIBC, as they believe the company is well-positioned in the on-demand email marketing segment.
• Citigroup initiated Senorx Inc (NASDAQ: SENO) with a Hold rating and $12 target, citing competition concerns and their belief that infrastructure investments could delay profitability.
• BWS Financial said RemoteMDx Inc (OTC: RMDX) has been able to secure contracts that should result into larger follow-on orders as the TrackerPAL starts to have a history in real life scenarios. The firm started shares off with a Buy rating and $8.75 target.

OTHER INITIATIONS:

• Bear resumed coverage of China Southern Airlines Company Limited (NYSE: ZNH) with an Underperform rating and China Eastern Airlines (NYSE: CEA) with a Peer Perform rating.
• Deutsche Bank initiated Seagate Technology (NYSE: STX) and Hutchinson Technology Incorporated (NASDAQ: HTCH) with Hold ratings and a $30 target and $26 target.

EMC Corp. (NYSE: EMC), the data storage company that powers much of the digital storage needs for large companies and internet providers, has seen its shares hit a six-year high not because of its own merits, but because it owns so much of software virtualization company VMWare, Inc. (NYSE: VMW).

This sounds an awful lot like the LBO situation Seagate Technology (NYSE: STX) found itself in six years ago when the disk drive maker owned a third of the software company Veritas -- and that stake alone was worth double what Seagate itself was worth. If you're a billionaire, opportunities like that present handsome profit potential.

An analyst at Pacific Crest Securities Inc. this week said that EMC may be a takeover target soon due to its majority stake in VMWare, whose shares have tripled since going public less than two months ago. Perhaps IBM, Inc. (NYSE: IBM) or Hewlett-Packard Corp. (NYSE: HPQ) would be interested?

VMWare would be very attractive to a n operating software company due to the nature of the software products it markets, and there are probably more than a few companies that would like to get their hands on its product base. The last time EMC shares were this high was back in July 2001 when shares peaked at over $22.57 each. Right now, shares in VMWare stand at over $107 each.

Seagate Technology (NYSE: STX) has begun shipping the first of its hybrid hard drives for notebook computers and smaller computing devices needing high-performance storage at reasonable cost. Hard drives are inside almost every desktop and laptop PC these days, and although they have advanced technologically with processor speeds and other performance metrics, they are still the performance bottlenecks in almost every computer. Why? At the root, hard drives are still where they were decades ago -- reading and writing data from spinning magnetic platters. Many tricks have upped performance since 2001 or so, but hard drives still look to be aging for the computing needs which always require more performance year after year.

Now, for pure storage needs, like for iPods or TiVo boxes, hard drives are fine. As laptop computers replace desktops, more performance is becoming crucial to these systems. As a result, the hybrid hard drive was born. Newer units from Seagate contain 256 Megabytes of RAM (solid-state storage) to augment those spinning magnetic platters. Here's the only wrinkle: there is a cost premium to that. Will consumers accept that? Highly doubtful, and so we have a conundrum.

Seagate's newer hybrid hard drive products may make their way to higher-end laptop computers soon, and the early adopter consumer and technologically minded will pay the expected 30% premium just to get the added performance (well, hopefully added performance). After a while, volume and economics will drive that premium down to where there is none. If Seagate really wants to become the premier supplier of new-generation hybrid drives above where it already sits with existing market share, that premium needs to come down to 10% to 15% at the most. That may crimp margin a little, but competitive laurels won't ever rest when it comes to the hard drive industry.

Seagate Technology (NYSE: STX) has had an interesting seven years. The company was taken private by a group of investment firms led by Silver Lake Partners and Texas Pacific Group and then returned to the public markets a mere two years later for some odd reason. Wait: that reason was to give a payoff to the investors, as going off the market for 24 months gave the global company a chance to sneer at Wall Street's quarterly, paranoid expectations and focus on long-term strategy. The hard drive company you may have rarely heard of, though, is recording billions in revenue each quarter and is in fine shape financially. CEO Bill Watkins trumpets this fact all the time, but the Street rarely listens.

So, with Watkins alluding to $3 billion quarters in the near future and growing profits these days, is the market listening? Maybe not yet, but maybe your portfolio should. The never-slowing demand for storage is everywhere these days, hiding in plain site. Have a full-size iPod, Tivo box or other DVR, Xbox 360 or a computer in the home? Each one of those probably has some kind of hard drive in size, and according to Watkins, more consumers are buying all that storage than businesses these days. We have an insatiable need to store movies, music, files, taxes and everything else digitally, so this makes sense.

MAJOR PAPERS:

• Ratan Tata, chairman of the Tata Group of India, has confirmed his interest in the Jaguar and Land Rover units of Ford Motor Company (NYSE: F), according to the Wall Street Journal.

OTHER PAPERS:

• The Washington Post reported that Home Depot Inc (NYSE: HD) has made a deal to sell its supply arm, HD Supply, for $8.5B, down from the original price of $10.3B, to a consortium of private equity firms headed by Carlyle Group, inside sources say.
• According to a sources with knowledge of the discussions, Altria Group Inc (NYSE: MO) is considering spinning off its Philip Morris International division as part of a restructuring plan to increase shareholder value, reported the New York Times.
• A Chinese technology company has expressed interest in buying Seagate Technology (NYSE: STX), reported the New York Times.
• According to senior industry analysts, Dr. Reddy's Laboratories (NYSE: RDY) is eyeing U.S. based Bradley Pharmaceuticals Inc (NYSE: BDY), which is expected to be valued at between $380M-$400M, reported the Economic Times.

Seagate Technology (NYSE: STX), the world leader in the manufacture of hard disk drives, has announced a significant step in its product line that signifies the changing economic realities of the computer storage market. The company, which has been the fiercest proponent of pushing its magnetic platter-based hard drives for over two decades, will begin making hard drives based on flash memory instead of magnetic disks spinning at 7,200 RPM or higher. Seagate is a little-seen brand, but its products probably power that web server you're connected to right now, that iPod you listen to, the TiVo you watch, and the Xbox you play.

This was just waiting to happen, and Seagate picked the right time in the intensely competitive storage market to make this commitment. Right now, computer storage for that laptop, TiVo box or Xbox 360 is way, way cheaper to accomplish using disk-based storage. But, as the cost has dropped and the capacity has risen for solid-state storage, magnetic hard drives have all but been pushed from items with lower storage needs, like MP3 players and many iPod models (although the larger iPod models still use traditional hard drives).

Will Seagate abandon its bread-n-butter magnetic hard drive business? Don't count on it -- it's likely that magnetic-type storage will still enjoy an immense cost advantage in the near future even in the face of rapidly falling prices for flash-based chips. But, instead of fighting the battle any longer, Seagate is making the right decision to compete in the developing flash hard drive market -- even if that market will be rather small in the near future. Seagate at least wants to cover all the technologies in all the storage markets, which is strategically commendable.