Interesting stuff!!! -->
Day Trader : A classic battle between the bulls and bears is playing out today in shares of semiconductor maker Transmetta Corp (TMTA 17.10 -0.20)... There has been a consistent effort by short-sellers to depress the shares of TMTA going into its post-IPO unlock this weekend. Tactics have included the floating of a rumor that the company's venture capital backers are planning to liquidate positions once the lock-up restrictions expire. Fear of share inundation, coupled with the suppression of rally attempts by shorts establishing new positions and intraday blocking ploys, has kept the stock on the defensive... Today, TMTA is in a fight not to be rolled through pivotal support at $17. Contributing to the issue's resiliency is a Reuters report that TMTA is close to announcing a deal with a Japanese notebook computer maker that could give the chip maker an important entree into the U.S. market... This is the type of news that in the past would have ignited a sharp uptick in TMTA shares... Instead, the stock is trading in the red, hovering just off its lows of the day... Of course, the inability of TMTA to break out of its technical funk has not been entirely based on the antics of the shorts. Company contributed to getting itself delisted from the market fast-track by issuing a revenue warning just six months after its initial public offering. TMTA told investors to expect a moderate increase in JunQ revenues, compared to the more than 60% improvement anticipated by analysts. An earnings warning of this magnitude is a no-no on Wall Street, especially when it comes this soon after the IPO. The news served as a life raft for short-sellers caught in the squeeze taking place at the time of the warning... The plan now is to ride the stock down to a new low, and hope that momentum players don't return before the shorts have had a chance to slowly bring in the more than 7 mln shares they have bet against the stock. Expect longs to attempt stands at $17.00 and $15.50 support levels. -- Damon Southward, Briefing.com
13:05 ET ******
The Economy : Though the economy doesn't tend to swing wildly from recession to expansion and back from one day to the next, that's often the way it seems as economic sentiment is closely tied to the latest move in the Nasdaq. As such, it can pay to anticipate the next swing in sentiment. We would note that the risk of a swing back to recession fears exists with tomorrow's Employment Report. Recent data have prompted Briefing.com to slash its April nonfarm payrolls forecast to a 75K decline from a 20K increase.
The Hints:
Jobless claims (4-week average) jumped to their highest level since October 1992.
NAPM employment index fell to a very weak 38.1% in April from 40.4% in March.
NAPM non-manufacturing employment index fell to 46.7% in April from 49.4% in March, also indicating job declines.
Outplacement firm Challenger's layoff report revealed a record 165,600 layoffs announced in April.
The Report:
After showing solid job gains in Jan/Feb, the Employment Report revealed an 86K decline in jobs in March.
Economists are forecasting a 25K gain for April. Could it happen? Sure, the numbers are very volatile, and the Labor Dept is notoriously bad at accurately reporting the month/month changes. So even if payrolls are really declining, the reported number could be an increase.
More importantly, is it likely to happen? No. Economists always react slowly to new information, and we will therefore go into tomorrow's report with economists expecting an increase when all available information points to a decline.
Bottom line: None of the reports cited above as justification has a close correlation with the payroll numbers, but experience suggests that when they all point strongly in the same direction, you would be unwise to ignore the message. We didn't ignore the message, and now expect a payroll decline as a result; if it happens, don't be surprised if perceptions of the economy take another sudden turn back to pessimism. - Greg Jones, Briefing.com
11:58 ET ******
Magna Intl (MGA) 55.20 +2.65: Magna is one of the most diversified automotive suppliers in the world selling everything from seats, instrument and door panel systems, closure systems and sound insulation as well as numerous components. Basically, if it's in your car, there's a good chance Magna makes it. The company is hitting a new 52-wk high today after reporting last night. Sales for Q1 were a record $2.9 bln, up 2% yoy, despite North American and European vehicle production down 17% and up 2%, respectively. In spite of the decline in North American vehicle production, automotive sales were essentially flat vs last year....Times are tough as mgmt expects results to continue to be impacted by the weak automotive industry generally, including production cut-backs, OEM price concessions, and continued weakness of the Euro. The company expects production declines this year of 10% in North America and 3% in Europe. As for guidance, the company now expects 2001 sales in the $9.9-$10.5 bln range vs consensus of $10.1 bln. However, full year EPS was guided up to $4.90-$5.40 vs First Call consensus of $4.79. For Q2, sales and EPS guidance is similar to consensus estimates....So, if the auto industry is so terrible, why is the stock setting highs? Some see a bottoming of the cycle, but more positive is the company's plan for a restructuring and spin-offs. Its Board has approved the creation of Magna Interiors and Magna Steyr, with the intention that both will go public in order to unlock their value. -- Robert J. Reid, Briefing.com
11:51 ET ******
Palm (PALM) 8.57 -1.18: Palm shares are selling off today after Lehman Bros downgraded the shares of competitor, Handspring (HAND) this morning. As of yesterday's close, PALM had run 70% over the past four weeks after the company warned on March 27. Lehman Analyst, Joseph To expects the handheld market to see increased promotional activity in the near future as graduation and Father's Day season approaches. According to To, HAND has been held hostage to aggressive pricing from PALM over the past month, and will soon be forced to retaliate with its own discounts. Promotions and discounts mean lower margins, but PALM has no choice as inventory levels must be reduced in the face of waning consumer demand. PC Data April information showed a 20% decline in Palm sales by US retailers, continuing a trend that has seen Palm sales slide since February. With the April numbers confirming that the last few data points were not aberrations, it's puzzling to understand the stock's recent strong performance. Of course, the entire Nasdaq has rallyed, and you could attribute the gains to shorts being run out of techs, but fundamentals at Palm are not showing signs of improvement. Inventory turnover went from 9.9x in Q2 to 3.1x in Q3 and days inventory on hand ballooned from 9 to 29 days. Not surprisingly DSO (Days Sales Outstanding) shot up 10 days from 42 to 52. There are hopefuls on the Street that point to the recent introduction of the new Palm m500 and m505, but with price points of $399 and $449, respectively, it's difficult to imagine the new models having a major impact right off the bat in this environment. The demand picture and the inventory management must improve before we get excited about PALM shares. This is a stock selling at 57x ttm EPS and 286x the consensus FY01 (May) estimate, that P/E is moving in the wrong direction, and with a FY02 consensus mean of ($0.01), next year's outlook isn't any better. -- Matt Gould, Briefing.com
09:58 ET ******
Cirrus Logic (CRUS) 18.26 +1.56: CRUS is getting a makeover. This chipmaker reported EPS of $0.06, in line with the First Call consensus on 25% revenue growth yoy. It also guided down for JunQ, expecting a sequential sales decline of 10%-15% with EPS of $0.10-0.15, vs consensus of $0.11. However, the most important announcement was that the company is refocusing itself on its higher growth/higher margin entertainment electronics business and away from its magnetic storage business. Management quantified the impact on the income statement. Assuming a recovery in the chip industry by early next year, mgmt believes it can achieve its new targets by the end of next fiscal year: gross margin of 50%, up from 44%-46% and operating margin of 20%, up from 16%-18%...The conference call last night was positive as gross bookings and book-to-bill increased in MarQ. Strongest showing was for products going into DVD players and set top boxes. Also, a key statement was that the large amount of cancellations described in the company's pre-announcement a month ago have virtually stopped....Balance sheet poised to wether downturn with $3.41/share in cash and investments and virtually no long term debt...This morning, influential Salomon Smith Barney analyst Jon Joseph upgraded the shares to Buy from Outperform and raised his price target to $28 from $25...Despite First Call consensus EPS for fiscal 2002 of only $0.59, Briefing.com views CRUS among the most attractive chip stocks to own for a sector turnaround over the next year. Like many chip stocks, CRUS has doubled since early April, so there should be some weakness over the next couple of weeks. We would buy on dips given the company's transitioning to become a higher growth and higher margin company. Cirrus Logic will be the chip industry's largest pure play in consumer entertainment electronics, with strength in analog and DSP technologies. Our 12 month target is $30. -- Robert J. Reid, Briefing.com
09:27 ET ******
Macromedia (MACR) 26.58: This maker of web design software is getting hammered in pre-market activity. The catalyst is MACR's fourth quarter operating results which came in shy of analyst expectations. Pro forma earnings were $0.15 EPS which missed the consensus by 5 cents and represented a 50% decline over the $0.30 EPS earned in the year-ago period. Not great results, but what's hurting MACR is the forward guidance provided by the company. There wasn't any... In what's become an obligatory portion of every tech-related conference call, management said, the economic climate has significantly reduced our visibility into future financial results. So the question at this point is whether MACR is in the bottom of its business cycle, or whether this report is a harbinger of sustained deterioration in its business. Following two years of Internet mania (and one year of hangover), it's worth taking a look at what used to be MACR's end market. The web design business had previously been split into two camps: 1) pure play dot coms which have largely ceased to exist, and 2) old economy businesses which are beginning to reassess the value of their Internet plans. It was particularly unfortunate to lose the former group because it was rife with poorly managed businesses that could care less about turning a profit. So MACR's business will now turn disproportionately (on an historic basis) to the second group which is placing a premium on ROI in the current economic environment. Based on MACR's inability to provide guidance, and the shift in its end-market currently underway (i.e. the reason it can't forecast) Briefing.com would avoid the shares. --Michael Ashbaugh, Briefing.com
09:18 ET ******
Morning Movers : The major indices all pushed above their mid-month highs yesterday and closed on a firm note. However, a weaker feel was noted in after hours action and this has been appreciably extended in pre-market trading this morning. An indication of a weakening of the buying enthusiasm could be seen in the action yesterday. Strong volume totals were posted but the indices were unable to generate enough strength to run through solid resistance barriers at 11,000 Dow, 2251/2255 Nasdaq Composite and 1272/1274 S&P. While it remains to be seen how this will play out, these developments have potentially set up a situation that is more typical of a short term top based on the divergences (indicators fail to follow prices to new highs) that have formed thus far. An active loser last night and this morning is Macromedia (MACR 26.58) which is currently indicated to open over 5.5 points lower. They missed for Q4 but also steadfastly refused to give any solid guidance. A move of this magnitude puts MACR in position to quickly test support in the 21/20 area. This represents it 20/50 day simple ma and also the 50% retracement of the rally off the April low. From a chart view, it will take gains back through 25.90 to improve the very short term tone. Secondary support comes in between 19.35 and 18.80. Asyst Technologies (ASYT 19.12) also missed its quarterly projection and said it will reduce its workforce. It is currently indicated to open over 3 points lower which suggests a test of its long term moving average (200 day) which proved a stumbling block in Mid-April. A penetration would open the door to support at 15/14.2 (50% retracement-50/100 day ma). Some bigger names to watch include Cisco Systems (CSCO 20) and Sun Microsystems (SUNW 20.44). Both are indicated to open less than a point lower but have supports of importance within relatively easy reach at 19.1 (50 day ma) and 19 (gap), respectively. Penetration coupled with negative divergences of their own argues for further near term corrective activity. -- Jim Schroeder, Briefing.com
19:26 ET ****** 02-May-01
Midway Games (MWY) 10.22: If you like to speculate in turnaround plays, you just might like Midway Games, a provider of interactive entertainment software to the coin-operated and home video game markets. If you don't like to speculate, however, chances are you won't want any part of Midway Games.
The Current State
Posted a fiscal Q3 pro forma net loss of $0.38 per share, $0.07 wider than expected, and versus a yr-ago net loss of $0.30 per share; revenues of $23.72 mln were down a whopping 57% from the yr-ago period
Abysmal yr/yr comparisons attributed to company's platform transition strategy that is highlighted by a move away from development for coin-operated games, and legacy consoles, and a focus on developing quality titles for the new Sony PlayStation 2, Nintendo GameCube, and Microsoft Xbox consoles and Nintendo Game Boy Advance handheld platform
Expects Q4 net loss to be slightly less than Q3, after excluding restructuring charge (consensus is loss of $0.27) and revenues to be $18-$20 mln (consensus $25 mln)
The Metamorphosis
Effective this year, it will change its fiscal year-end from June 30 to December 31 as the calendar year coincides better with the industry's natural business cycle
In March, MWY reduced its coin-operated workforce by roughly 60 employees; of the 375 employees in product development now, approximately 80% are focussed on home video game development
In the June qtr., two new titles for PS2 will be released and one for Game Boy Advance; in Sept. qtr., two new titles for PS2 will be released; in its Dec. qtr., three new titles for PS2 will be released, two for GameCube, one for Game Boy Advance and three for Xbox
Anticipates releasing over 31 SKUs, and at least 14 individual, separate titles, for new consoles in calendar 2002: at least 12 games for PS2, nine games for GameCube, ten games for Xbox, and is developing several titles for new Game Boy Advance
Expects fall, and through close of calendar year, to be the period when business turns much more positive, but clarifies that the full impact of its transition strategy will be felt in calendar 2002
Bottom Line: Midway Games has the right idea in reducing its exposure to the coin-operated business and focussing its efforts on developing titles for the new consoles. Its metamorphosis, though, is still very much a work in progress that sounds good on paper, but has yet to provide any significant improvement in its top- and bottom line performance, and most likely won't for at least another 4-6 months if, in fact, consumers find the new product offerings appealing. At this point, all one can do is speculate on the company's potential success, because its plan is unproven. We wish Midway Games well in its undertakings, but at this juncture, we need proof in the numbers-- and preferably profits-- to recommend its stock.-- Patrick J. O'Hare, Briefing.com
18:17 ET ****** 02-May-01
After Hours Wednesday Prices vs. 4 pm close: A quieter after hours session as not as many big names came out with news/earnings, however, the tone was generally weaker. Midway Games (MWY closed at 94.22) came in with a Q3 loss of $0.38 per share, missing the consensus by $0.07. Also substantially guided down revenue for Q4 and indicated that it will miss the current EPS projection. Company positive on call; says shifting focus to home video game business with new product lineup to be a catalyst for 2002 growth. Other in this space include ERTS, ETWO and THDO. Cirrus Logic (CRUS +0.73) reported Q4 EPS in line with expectations and also stated they will shift their focus to higher growth and higher margin entertainment electronics, away from magnetic storage. A sizeable loser in after hours trade is Macromedia (MACR -5.53) which missed by $0.05 for Q4 but more importantly would only guidance of over 20% operating income. Sellers, however, have seen clear enough to punish the stock. Competitors include ADBE and VWPT. Another stock in the loser category is Genzyme (GENZ -4.66) which announced a $500 mln convertible offering; amount and timing of deal appear to be contributing factors to the slide. Other issues missing the consensus included: CAMC, CLTK, ASYT (also warned), RNBO, DTEC and ACTM. For additional information on these, and other stories, be sure to visit Briefing.com's Short Stories and Earnings Calendar pages. Currently, the S&P futures are at 1269, 3 points above fair value while the Nasdaq 100 futures are at 1970 3 points below fair value. |
