Network Equipment . . . Nokia may be recepient of largest phone order in CDMA phone history. American Technology Research believes that the largest phone order in CDMA phone history has been issued by Verizon Wireless to Nokia. This phone will be launched on 10/14/03 and with a $50 rebate shared by both Nokia and certain channel partners, will cost users only $50. Firm believes the pure size of this order should help Nokia establish some CDMA market share of note and is a net positive for the company. Nokia sources say the order is large enough to ensure a profit despite the low price required to secure the business. However, firm believes that investors may view this as a negative as the $USD denominated deal may translate into lower EUR ASPs when the deal is reported next quarter.
Motorola reported 3rd quarter EPS ex-items of $0.06 a share, $0.03 better than the consensus. On a GAAP basis, company earned $0.05. Sales rose 5% to $6.83 billion versus consensus $6.44 billion. For 4th quarter, company sees EPS ex-items of $0.11-0.15 on sales of $7.5-7.8 billion versus consensus $0.12 and $7.426 billion. Motorola's chief operating officer comments that overall, 3rd quarter was a strong quarter for co and one that "signals some positive momentum in key aspects of our business." Outgoing CEO Galvin says the "combination of clear business portfolio choices and these stronger third-quarter financial results represent substantive early indication of a reinvigorated Motorola and they show the potential for continued profitable growth momentum."
What is good for Motorola is usually good for Nokia, RF Micro, and Sawtek.
In a Reuters interview, Qualcomm CEO Irwin Jacobs said he sees no abnormally high handset inventories ahead of the key year-end selling season, because Chinese carriers have mostly gotten rid of their stockpiles and that he sees steady quarterly sales growth in the next fiscal year, as the chip maker prepares for increased competition and more advanced phones. When asked if he expected another bumper year of 30 percent revenue growth, he said much depended on growth in developing countries like China and India, but also on the adoption of third generation (3G) networks in Europe, Japan and South Korea.
Cisco Systems announced that Verizon has selected the Cisco 12000 Series Router platform for its national IP VPN network. It will be part of Verizon's expanded network to deliver Layer 3 IP/MPLS Virtual Private Networks to Verizon's enterprise customers.
Semiconductor Equipment . . . Lam Research started with a Buy at Adams Harkness. The firm believes that LRCX has gained significant share in the fast-growing dielectric etch mkt during this downturn, and early customer wins at this stage should lead to strong revenue growth when volume orders start to flow. Also, LRCX should enjoy tremendous leverage in the next upturn due to outsourcing. Price target $36.
Cree was upgraded to Buy at Needham based on lowered risk after the former CEO dropped his securities-fraud claim and the special committee found no evidence of allegations. Firm introduces a price tgt of $23.
Piper Jaffray raises Applied Materials 2004 EPS estimates to $0.50 from $0.45 which was above consensus of $0.46 based on their belief that the company's revenue plan for 1st half 2004 has solidified and that product improvement design efforts should provide an incremental boost to gross margins. The firm believes that orders looming in 1H04 from Samsung, TSM, Renasas, Elpida, and Matsushita could provide incremental rev strength by mid-2004.
Semiconductors . . . Texas Instruments, the world's biggest maker of chips that run mobile phones, is ``reasonably priced'' relative to future earnings, said Hans Mosesmann, a Soundview Technology Group analyst. He downgraded Texas Instruments, which is up 70 percent this year, to ``neutral'' from ``outperform.''
Trident Microsystems target raised to $22-$25 at CE Unterberg and raises their target range to $22-$25 from $13-$15. The firm says their tour of Asia convinces them that TRID is the best-positioned digital TV merchant chip supplier globally.
Soundview upgrades Altera to Outperform from Neutral based on their belief that a fundamental shift is taking place in favor of the company. The firm's industry sources are bullish about ALTR's revenue potential in 2004-05 resulting from current design win activity, and firm notes that ALTR trades at a 2% discount to Xilinx versus a historical 6% premium. The firm also downgraded Texas Instruments to Neutral from Outperform based on valuation, and downgrades Cree Reseaech to Underperform from Neutral based on their belief that the company will experience faster than normal blended ASP declines, which will translate into gross margin pressure; maintains CREE target of $15.
Integrated Silicon believes that its 3rd quarter revenue estimate of $27 million may prove conservative given heavy consumer electronics exposure (45% of rev) and stabilization in SRAM and DRAM ASPs.
Piper would sell Intel into strength as stock approaches $35 target. Piper Jaffray says that seasonal weakness in 1st half 2003 could be exacerbated by an abbreviated desktop product cycle (Prescott/Springdale) and continued hesitancy by corporate buyers. Also, the redesign of Prescott/Dothan has pushed out the 90nm ramp to 2-1/2 years after the 130nm process, which would imply that the 65nm process may not ramp until 1st half 2006; with sequential and Year over Year growth peaking, firm recommends selling into strength as INTC shares approach their target of $35. Maintains Outperform rating.
The Wall Street Journal reports competitors of Intel are "stepping up" their attacks this week at the Microprocessor Forum, in San Jose, CA. The latest chips attack markets outside Intel's PC stronghold. Transmeta plans to strike back this fall with Efficeon, which is a chip that is expected to be about 50% faster than the Crusoe and top Pentium M in performance at similar energy-consumption levels. Sun Microsystems and Fujitsu plan to put two microprocessor brains, dubbed cores, on their forthcoming chips, and exploit a technology called "multi-threading," in which chips execute parallel strings of instructions known as threads to head off Intel's Itanium 2 in high-end server systems.
Based on Powerwave’s most recent channel checks, CIBC now believes that it was too conservative about the downside risk to firm's 2004 estimate. However, near term outlook is strong. Firm now believes that 32%-50% of PWAV revenue for 2004 is at risk of being lost to internal Nortel production of both GSM and CDMA power amplifiers; firm is unable to see how PWAV would be able to offset the potential loss of revenue with growth in 3G and at carriers. While PWAV may be able to save its NT business, firm believes it would need to concede to significant price concessions in order to keep it, which would then permanently damage the gross margins of the company below previously expected levels.
SanDisk announced that the U.S. District Court for the Northern District of California granted defendant Ritek Corporation's motion for summary judgment of non-infringement. In its order, the court found that the accused Ritek CompactFlash memory cards did not infringe on SanDisk's patent. SNDK says the order does not affect the validity of the patent. License obligations under SanDisk's existing licenses are not impacted by the court ruling and, accordingly, the company does not expect royalty income to be affected. SNDK plans to appeal the ruling.
Banc of America downgraded Micron to Neutral from Buy and cuts their target to $11 from $19. The firm says recent checks into the Taiwan spot mkt indicate DRAM spot prices continue to decline, and OEM contract pricing for DRAM in the second half of October is likely to remain flat with the first half; while we may be a few weeks away from the peak of the DRAM purchasing cycle. The firm believes the ongoing weakness in DRAM spot prices as well as plentiful supply in that marketplace are strong negative indicators.
Intel reports 3rd quarter 2003 results on Tuesday 10/14 after the market close and will host a conference call at 5:30pm ET. Analysts are forecasting revenues of $7.80 billion (up 14.4% Quarter over Quarter), at the high end of Intel's guidance range of $7.6-$7.8 billion, and we estimate GAAP EPS of $0.24. Analysts have assumed a 7.1 point increase in gross margin to 58.0%, also at the upper end of the guidance range. Our estimates are slightly ahead of consensus of $7.68 billion (up 12.8% Quarter over Quarter) in revenues and $0.23 in EPS. A number of industry dynamics have contributed to Intel’s strength in the quarter, in addition to the better-than-seasonal PC market strength driven by notebooks. In particular, Intel’s higher exposure to notebooks, higher exposure to the OEM PC market, and a stronger product line-up relative to AMD have all contributed to market share gain in microprocessors. In addition, an improving product mix driven by notebooks and Centrino have likely contributed to stronger ASPs. For 4th quarter 2003, analysts are forecasting revenues to increase 9.0% Quarter over Quarter to $8.50 billion, slightly above the 8.3% average sequential increase in the past 5 years. While this represents a deceleration in sequential revenue growth from 3rd quarter, this should not be viewed as a concern as Intel is clearly working off a high base in 3rd quarter, and some of the factors that contributed to the strength in 3rd quarter, primarily market share gains, are likely to abate. Analysts are looking for gross margin to improve a further 2.5 points to 60.5%, and estimate EPS of $0.29. Continue to like Intel stock, due to: 1) the overall strength in notebooks and higher ASPs due to a favorable product mix, 2) the expected continuation in Intel’s margin expansion next year, and 3) a business model that can benefit from an acceleration in IT spending. Based on the increase in 2004 pro forma EPS estimate from $1.17 to $1.23, analysts are raising year-end target price from $33 to $34. The target is derived based on a multiple of 28x our 2004 EPS. Our 28x multiple is in line with the median forward P/E over the past five years. Risks to our target price include PC and communication market weakness; disruptions to 90nm and 300mm technology transitions.
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