Briefing.com - Tech Stock Analysis - 01/10/01 - General Commentary
Updated: 10-Jan-01
General Commentary
While nothing major occurred in Tuesday's trading, Briefing.com was generally encouraged by the price action... Telecom service stocks continued their impressive early year rally, with AT&T (T 22 1/2 +2 7/16), Worldcom (WCOM 19 13/16 +1 5/8), Sprint PCS (PCS 26 1/4 +1 13/16), Global Crossing (GX 21 3/8 +1 7/8) and Level 3 (LVLT 38 1/16 +3 11/16) among the biggest winners... Volume figures also very encouraging in this industry.
Another group showing signs of life after having been left for dead -- the Internet stocks... Led by Amazon (AMZN 16 3/8 +1 7/16), Yahoo! (YHOO 30 1/8 +2 15/16), eBay (EBAY 33 3/8 +2 3/4) and America Online (AOL 42.85 +2.82) the Internet Index rose 8.6%... Interestingly, sector managed to post gains amid rash of downgrades from the street - especially on Amazon... Maybe investors beginning to use street as a contrary indicator given that most of the analysts loved these stocks at their highs and have just recently begun to turn sour on the group - after huge declines.
Finally, we saw decent price action in many of the large-cap leadership names such as Cisco (CSCO 37 1/8 +37/64), Sun Microsystems (SUNW 29 7/16 +1 1/4), EMC Corp. (EMC 63 3/4 +2 1/4), Dell (DELL 19 3/4 +5/8), Oracle (ORCL 31 1/2 +1 9/16) and Microsoft (MSFT 51 13/16 +2 7/8)... Nothing spectacular, but nice solid gains... More importantly, each of the stocks rallied off key near-term support levels.
On their own none of the above events would be all that noteworthy... Taken together they provide evidence that the tone in the sector is beginning to shift, if only subtly... Momentum should continue to build as earnings season begins in earnest and as Fed continues to cut rates.
Robert Walberg
Industry Briefs
Computer Systems & Peripherals | Networking | Internet | Semiconductor | Semi Equipment | Software | Telecom Equip | Telecom Services
Computer Systems & Peripherals
Industry Members
Apple Computer (AAPL) 17 3/16 +5/8: Company to release new OS on 3/24... Also makes several product introductions at MacWorld Expo.
StorageNetworks (STOR) 19 +1: Salomon Smith Barney expects STOR to beat firm's top and bottom-line forecasts when it reports quarterly results; looking further out, believes that Feb. 20 lockup expiration could pressure the stock.
Networking
Industry Members
Brocade Comms (BRCD) 81 13/16 +3 13/16: Thomas Weisel initiated coverage with a BUY rating and price target of $100. Expects the SAN portion of the storage market to exceed $10 bln by 2003, with the switch segment growing at an 85%+ CAGR to roughly $3 bln by 2003; believe both the lower priced fabric and high end carrier class (director) switch segments will demonstrate strong growth. Brocade is the overwhelmingly dominant supplier of fabric switches, and is expanding into the high end of the market.
McDATA (MCDT) 49 3/4 -11/16: Thomas Weisel initiated coverage with a BUY rating and price target of $63. The enterprise storage market is large, continues to exhibit strong growth, and new data intensive applications could drive added growth over the next several years. We believe both the high end carrier class (director) and lower priced fabric switch segments will demonstrate strong growth. McData has virtually 100% market share at the high end, and is expanding into fabric switches.
Internet
Industry Members
Agile Software (AGIL) 31 7/8 +2 7/8: QUALCOMM (QCOM 73 1/4 -4 5/8) has chosen Agile Anywhere(TM) as its collaborative manufacturing solution to improve time to volume and enhance customer responsiveness. AGIL values contract at more than $1 mln.
Akamai Tech (AKAM) 20 9/16 +1 15/16: CSFB reiterated its BUY rating after CEO George Conrades revealed several positive datapoints regarding Akamai’s fourth quarter at MSDW’s Internet conference. Akamai had 1,325 recurring revenue customers at the end of the fourth quarter, or 210 new customers. Server deployment is proceeding faster than expected, with over 8,000 total servers now deployed. Akamai is clearly maintaining its customer traction in difficult market conditions and extending its competitive advantage by continuing to deploy servers broadly worldwide.
Amazon.com (AMZN) 16 3/8 +1 7/16: According to Bear Stearns, Amazon's revenues were 10% below firm's expectations for the qtr; believes that with only 40% yr/yr growth long term estimates will need to be reduced significantly; firm lowers price target to $30 from $55 to reflect lower relative valuations in the market and lower growth estimates moving forward... Separately, Robertson Stephens downgraded to MARKET PERFORM from LT ATTRACTIVE due to disappointing revenues and gross margins; firm lowered 2001 revenue estimate to $3.75 bln from $4 bln and adjusted EPS loss for 2001 to ($0.72) from ($0.63) and 2002 to ($0.06) from a profit of $0.25... Goldman Sachs downgraded to MKT OUTPERFORM from TRADING BUY due to lack of catalyst for near-term price appreciation... Finally, Salomon Smth Brny downgraded to OUTPERFORM from BUY, noting that it won't formally change earnings model until final Q4 numbers are released, but says 2001 revenue estimate of $4.1 bln will likely move to $3.5-3.6 bln... Despite all the negative news from the street the stock rallied -- maybe investors beginning to disregard analytical community that loved AMZN when it was $100 stock and can't run away from it fast enough now that it trades below $20... Can you say contrary indicator?
Ameritrade (AMTD) 8 1/8 -1/2: ABN AMRO downgraded to HOLD from ADD after the company warned yesterday of a Q1 shortfall.
barnesandnoble.com (BNBN) 2 13/32 +5/16: After the close, company warned for FY00... Says pro-forma loss per share for 2000 will be in the range of $1.05 to $l.08... While the loss per share is expected to be higher than the consensus estimates, those estimates did not include the consolidation of Fatbrain.com from its acquisition date or the additional marketing expense associated with the Yahoo! strategic marketing agreement... Adjusting for these expenses, the loss per share would have been in line with consensus estimates.
Centra Sftwre (CTRA) 5 3/4 +11/16: Company anticipates reporting revenue in the range of $7.6-7.8 mln, and a pro forma net loss of $0.14-0.15 per share; results are in line with analysts' previously published consensus estimates.
Digital Island (ISLD) 4 +1/4: After the close, company announced it has been chosen by Evoke Communications (EVOK 1 3/4 unch) to provide outsourced operations for Evoke Communications' Webcasting customers.
Entrust Tech (ENTU) 13 -3/8: Vodafone selects company to provide secure e-business services for over 550,000 customers.
Excite@Home (ATHM) 6 5/8 +1 5/32: Announced that it has attained its Q4 goal of 25-30% growth in its worldwide broadband subscriber base, ending the year with approximately 2,950,000 subscribers, up from 2,313,000 at the end of Q3.
priceline.com (PCLN) 1 13/16 +1/4: PCLN shares are up 11/32 (19%) at 2 5/32 after hours on news that Expedia.com (EXPE 9 7/8 +1/2) has entered into a royalty arrangement with priceline.com. The financial terms were not disclosed.
SeeBeyond (SBYN) 9 1/8 +1 5/8: Frost Securities upgraded to STRONG BUY from BUY; upped price target to $30 from $17 after company issued upside preannouncement Monday... Separately, Wit SoundView upgraded to STRONG BUY from BUY. Says stock is a compelling value compared to webMethods (WEBM 64 5/8 +4 1/8) and (TIBX 34 7/8 +3 11/16) and would be aggressive buyers at current levels.
Webvan Group (WBVN) 15/32 unch: Online grocer warns that it expects revenues of approximately $84 mln, below previous guidance; expects a Q4 loss of approximately $0.23, three cents above the current First Call estimate.
Yahoo! (YHOO) 30 1/8 +2 15/16: ABN AMRO downgraded to HOLD from ADD based on belief that YHOO still has some 20% downside before reflecting company's diminished revenue and EPS prospects for 2001... Suspect yesterday's gains related to short-covering ahead of earnings announcement.
Semiconductor
Industry Members
Alpha Ind (AHAA) 27 1/4 -1 1/4: Awarded semiconductor production order from Siemens AG for company's newest dual-band GSM wireless handsets for the European market... News offset by NOK announcement.
Intel (INTC) 32 1/4 +5/16: Shrugged off cautious note from Salomon Smith Barney analyst Jonathan Joseph... Joseph concerned about Q1 outlook based on PC and Taiwanese motherboard markets... As a result, lowered Q1 revenue expectations from flat to down 10-15% due to weak demand and concerns PC component companies, like Intel, are taking from Q1 to make Q4... Current Q1 EPS estimate is $0.35 (First Call consensus is $0.35) but Joseph believes it could come in closer to $0.30 and says 2001 EPS of $1.42 may fall to $1.30 or less (First Call consensus is $1.53).
Semi Equipment
Industry Members
There was no news of note in the Semi Equipment industry.
Software
Industry Members
Computer Sci (CSC) 53 5/16 -2 5/8: CS First Boston reinitiated coverage with a downgrade to HOLD based on concerns regarding near-term softness in consulting and system integration markets and potential for guidance reductions; says recent CIO checks support concerns.
Geoworks Corp (GWRX) 2 29/32 +11/32: Mobile data communications services company announced agreement with Nuance (NUAN 32 3/8 +2 7/8) to offer voice enabled mobile data services to Geoworks' clients.
i2 Technologies (ITWO) 41 11/16 -1/4: Salomon Smth Brny upgraded to BUY from OUTPERFORM after Monday night's upside preannouncement. Analyst said software stocks that will outperform are those that can provide rapid, quantifiable ROI and can reduce costs. IT spending will be cut back, but not across the board with software spending actually increasing. i2 is one of the few software companies SSB believes is well-positioned for 2001... Separately, CS First Boston noted that sequential license growth rates were cut in half vs last 2 qtrs... Believes that ITWO pushed out revenue into Q1 to provide shelter for a potential IT slowdown... Said appears that EPS will be in line to a penny above firm's $0.08 estimate... Finally, ABN AMRO reiterated its BUY rating and price target of $100. Said ITWO’s announcement bodes well for Ariba (ARBA 36 15/16 -1/8) and Commerce One (CMRC 19 1/4 +1 1/4) and should relieve concerns of a slowing in IT spending.
Infosys Tech (INFY) 97 +4 9/64: India-based IT services company posted Q3 earnings of $0.26 a share, $0.01 better than the First Call consensus, vs year-ago earnings of $0.12... Revenues rose 120.3% to $114.91 mln from a year-ago of $52.16 mln; e-commerce engagements comprised 28.3% of revenues for the quarter, dot-com start-up companies accounted for 5.8% and telecommunication and other start-up companies accounted for 3.5%.
Manugistics (MANU) 44 +4 1/4: Company said it is seeing increased demand for its electronics and high-technology solutions. Given their focus on supply chain management and pricing and revenue optimization solutions, company feels those sectors feeling profit/margin squeeze can benefit from their portfolio of solutions... CSFB initiated coverage with a BUY.
Rational Sftwr (RATL) 36 13/16 +1 3/4: Company announced an agreement with Marimba (MRBA 5 9/16 +1 9/16) to demonstrate that using Marimba's Timbale for Server Management and Rational's ClearCase is a powerful new content creation and deployment solution.
Speechworks Intl (SPWX) 21 1/2 +1 3/8: Robertson Stephens initiated coverage with a BUY. Says company is positioned at the forefront of an emerging high growth market to automate voice interfaces and applications; firm forecasts 75% average annual revenue growth over the next three years.
Telecom Equip
Industry Members
Celeritek (CLTK) 31 +1 3/4: After the close, reported Q3 earnings of $0.21 a share, $0.02 worse than the Zacks consensus of $0.23... Revenues rose 105.1% to $24.25 mln.
China.com (CHINA) 5 +23/32: Announced deal with Nokia (NOK 39 5/16 -3 13/16) to provide online content and services to Nokia's rapidly growing numbers of fixed line broadband Internet users in China.
Ditech Corp (DITC) 7 1/32 -3 19/32: Slammed after warning that Q3 and full yr earnings and revenues will be below expectations provided in its Nov. earnings conference call; sees Q3 EPS in the range of $0.00 to ($0.05) vs mean estimate of $0.46... Lowered full yr forecast to $0.84-$0.95 from $1.86 anticipated by analysts... Company blames shortfall on delay of new product and an unexpected slowdown in infrastructure spending by its customers... For more see yesterday's Story Stock on DITC.
LM Ericsson (ERICY) 10 13./16 -9/16: Company announced that Time Warner Cable has selected Ericsson as one of their top suppliers for cable modems in 2001.
New Focus (NUFO) 31 +1 3/16: Potential for further gains with next resistance at 33. Stronger ceiling near 35 1/2-36 (50 day ma/trendline). However support in the 30 to 29 5/8 area must hold if stock is to make run at these ceilings... Failure at support damages pattern of rally and suggests a neutral bias at best.
Nokia (NOK) 39 5/16 -3 13/16: Cell phone maker reported a 64% rise in mobile phone sales to 128 mln for the year 2000, which was less than expected... According to preliminary estimates, global mobile phone market volume in the year was approximately 405 mln units, representing a 45% increase from the previous year... AG Edwards reiterated its BUY rating and price target of $57.
Telecom Services
Industry Members
AT&T (T) 22 1/2 +2 7/16: Mrgn Stnly Dn Wttr upgraded to STRONG BUY from NEUTRAL... First time Morgan analyst has changed rating since initiating coverage with NEUTRAL back on 6/8/99 and only third upgrade by any analyst since 01/00.
McLeodUSA (MCLD) 17 3/4 -11/16: CIBC Wrld Mkts upgraded to BUY from HOLD rating with a price target of $25.
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