Motorola reported second quarter earnings that topped recently lowered expectations but indicated that third quarter results would fall short. Samuel May at USB Piper Jaffray followed by downgrading the stock to "market perform" from "outperform," citing the "challenging" second-half outlook and valuation. May has a $10 price target.
Qualcomm increased its quarterly dividend by 40 percent to 7 cents a share, payable Sept. 26 to shareholders of record on Aug. 29. "As a result of our very strong cash position and the recent change in the U.S. tax law making the distribution of dividends more efficient, we are pleased to increase the cash payout to shareholders," said CEO Irwin Mark Jacobs, the wireless technologies company's chairman.
Andrew Corp trades off on Lucent warning. LU is largest customer.
A.G. Edwards downgraded Echelon to "hold" from "buy," due primarily to valuation. The company announced that it was working with a Dutch utility company to examine deploying its networked energy services system. While Analyst Brett Miller believes the company will garner a disproportionate share of the device networking market, but current valuations, which are "at the high side of our comfort range," justify a "hold" rating.
Motorola reported 2nd quarter results in line with expectations, after the company had lowered guidance in early June. Total revenues were $6.2 billion versus revenue estimate of $6.2 billion and company guidance of $6.0 – 6.2 billion. Revenues were down 10% year/year but up 2% quarter/quarter. EPS excluding charges was a profit of $0.01 versus consensus estimate of break-even. Anlaysts are slightly lowering 3rd quarter 2003 revenue estimate from $6.41 billion to $6.34 billion, especially as the company’s handset revenue estimates for the third quarter are aggressive. Based on the company’s guidance, handset revenues should be up at least 17% quarter/quarter, which is likely unachievable, despite the weak 2nd quarter 2003. Handset shipments were 15.8 million versus 16.7 million in both 1Q03 and 2Q02. As a result, we believe that ASP’s were flat sequentially. Based on results from SonyEricsson and Nokia (which are expected to be up quarter/quarter in unit shipments when the company reports), Motorola is losing share in accounts, particularly in Asia, but to a lesser extent in the U.S. and Europe.
The semis division saw 2nd quarter 2003 revenues of $1.12 billion slightly above expectations of $1.08 billion. Particularly worrisome were weak bookings in the segment, which led to a book-to-bill of approximately 0.9. On the margins side, anlaysts are quite disappointed by the lower than expected margins in the semis business, which were minus-12.0% versus our expectation of minus-7.4%. Although Motorola’s valuation appears to be only slightly aggressive based on DCF analysis (at $10, MOT shares are discounting 9% revenue growth over the next ten years, 10% operating margins, a 4% terminal growth rate), need to see some stronger signs of recovery in the overall business and less uncertainty about the wireless infrastructure segment’s future in order to become more positive.
Semiconductors . . . WR Hambrecht commented on WLAN exit for Inegrated silicon. From a stock price perspective, firm believes that decision to sell its WLAN business to GlobespanVirata as a positive move from a stock price perspective, as it removes the overhang on stock stemming from an intense competitive environment in WLAN, while creating a pure analog play. Firm notes that it is surprised by the cheap valuation assigned to the business of 1.5x 2003 sales (notes that last year RFMD purchased Resonext at 5-8x 2003 sales). By exiting WLAN, the company can now focus on its more profitable analog business. Furthermore, analysts are positive on near term trends in WLAN, the transaction extricates the company from longer term concerns regarding pricing and profitability in the competitive WLAN chipset market. The company also gave positive preliminary results for its June Quarter indicating that results are expected to be above the guidance range of 5-7% sequential growth given last quarter, with 3 of its 4 product groups growing by greater than 10%.
M-Systems reported 2nd quarter loss of $0.01 per share, $0.02 better than the consensus of ($0.03). Revenues rose 74.1% year/year to $25.6 million versus the $24.0 million consensus.
RF Micro Devices was upped to Outperform at Thomas Weisel upgrades from Peer Perform on view that fundamentals have realigned and gross margins have turned the corner.
Bear Stearns is upgrading Intel from Peer Perform to Outperform. BS highlights that they are not making an absolute performance call on the stock, but a call that Intel will outperform the semiconductor sector. BS raised EPS estimates from $0.61 to $0.70 for 2003, and from $0.82 to $0.97 for 2004. The increase in estimates primarily reflects higher gross margin assumptions, which are now 56.0% and 57.0% for 2nd half 2003 and 2004, respectively, up from 51.8% and 52.6%. We have also raised revenue estimates slightly for 2nd half 2003 and 2004. BS end-2003 target price of $28 (based on 28x our proforma 2004 EPS estimate of $1.01) implies upside of 16% from the prior close. BS is aware that valuation could be an issue, BS is comfortable with our target multiple because: 1) proprietary semiconductor index is currently at 37x 2004E, therefore Intel's 28x is a significant discount; 2) The median forward P/E multiple for Intel for the past five years is 29x; 3) We now estimate higher earnings growth of 52% and 39% in 2003 and 2004 respectively. Intel's 2nd quarter 2003 results demonstrate Intel's execution in a period when a recovery in IT spending is a question mark. Intel has the potential to get significantly more leverage from its business model once IT spending does indeed accelerate. BS believes the stock will outperform the semiconductor universe with some absolute upside.
Intel reported 2nd quarter 2003 revenues of $6.82 billion (up 1.0% Quarter over Quarter), beating estimates of $6.70 billion and the company's $6.6-$6.8 billion guidance range. EPS of $0.14 also beat expectations of $0.13. Gross margin of 50.9% was higher than our estimate of 50.0%, and higher than guidance of "50% plus or minus a couple of points" that the company had re-iterated at its mid-quarter update. Intel guided for 3rd quarter 2003 revenues in the $6.9-$7.5 billion range. The mid-point of the range, at $7.2 billion, implies sequential revenue growth of 5.6% Quarter over Quarter (+1.2% to +10.0% Quarter over Quarter). Intel’s revenue is forecasted to grow 6.5% Quarter over Quarter in 3rd quarter 2003 to $7.26 billion, higher than the mid-point of the range, and estimate EPS of $0.19. Looking into 2nd half 2003, expect Intel to perform in line with seasonality, with possible upside due to notebooks being better. Remember notebook checks in Taiwan point to better than normal seasonality for 3rd quarter, while motherboard checks point to normal seasonality. Intel's continued ramp of Centrino should make the company a prime beneficiary of the strength in notebooks, as it leads to a higher-ASP product mix.
Intel did note that the macro backdrop has not improved – the company is not seeing a major corporate upgrade cycle or IT budgets being raised. Intel's 2nd quarter 2003 results demonstrate Intel's execution in a period when a recovery in IT spending is a question mark. Intel has the potential to get significantly more leverage more from its business model once IT spending does indeed accelerate. Some of this potential is reflected in estimates for 2004, as we do estimate that PCs will revert to stronger unit growth in 2004 as compared to 2003. However, a significant corporate upgrade cycle is not reflected in 2004 estimates.
Intel significantly raised its gross margin guidance for the full year, to 54% “plus or minus a couple of points”, from its prior guidance of 51%. The increase was attributed primarily to lower start-up costs and higher expected revenue. The company pointed out that some costs will shift from the COGS line to the R&D line, leading to some gross margin improvement. However, we estimate this factor accounts for less than one percentage point of the improvement in gross margin for 2003, and believe most of the gross margin improvement is due to higher utilization rates, and will fall through to the bottom line and result in better-than-expected earnings.
RobBlack.com MarketWrap:
robblack.com
I think fading the gap would work better than chasing it most days. That is essentially what Gottfried was saying too.
RtS |
