From Briefing.com: General Commentary - Unlike in recent sessions, Thursday's pullback was largely concentrated in one group - semiconductors. Spooked by Advanced Micro Devices revenue/EPS warning, investors unloaded on the chip industry once again... The widely watched Philadelphia Semiconductor (SOX) index tumbled 6.5% to close just two points from its 52-wk/multi-year low. Among group's biggest losers: AMD -32.4%, BRCM -11.6%, MU -8.7%, AMAT -8%, NVLS -7.7%, MXIM -7.4%, KLAC -6.9% and LSCC -6.6%.
Groups that managed to buck the bearish trend included Telecom (XTC +2.2%), Wireless (YLS +2.1%), Networking (NWX +0.8%) and Hardware (HWI +0.6%). Unfortunately, SOX tends to lead the rest of the sector, so if it blows through major support in today's session, will be difficult for other groups to ignore.
Should also note that EMC's (EMC 5.01 +0.13) warning - issued after the close of trading Thursday - is likely to weigh heavily on sector today... Worse than the company's miss was its language - described the IT environment as "brutal." Stock, as well as others in group such as BRCD and QLGC, down big in after hours activity.
The EMC warning combined with the deteriorating tone in the key chip sector suggests that techs will struggle in early trading Friday. Of course, tomorrow's jobs data could offset the negatives if it comes in better-than-expected. On the other hand, a bad economic number would merely exaggerate the already bearish tone, creating what one very ugly session. When it comes to techs, the sidelines remain the safest place to be.
Robert Walberg
5:46PM Thursday After Hours price changes vs 4pm ET levels: A number of technology companies are in the after hours spotlight, but none more so than storage company, EMC Corp. (EMC 4.47 -0.54), which cut its Q3 forecast.
Saying the IT spending environment remains brutal, and that it worsened at the very end of the quarter, EMC acknowledged that it expects to report total revenue of approximately $1.25 bln and a loss of $0.02 per share versus the Multex consensus estimates of $1.4 bln and a loss of $0.01 per share, respectively. Related companies like QLGC, BRCD, and NTAP are falling in sympathy with EMC in the after hours trade. Separately, EMC said its Board approved a buyback of an additional 250 mln shares.
In other developments, Integrated Circuit (ICST 14.50 +0.46) said it remains on track to meet its stated targets of 4-6% sequential revenue growth and EPS of $0.19-0.20 (Multex consensus is $0.20) for fiscal Q1 (Sep); andFreeMarkets (00C0 5.15 +0.35) reaffirmed its Q3 operational EPS guidance of $0.02-0.04 and revenues of $42-44 mln (Multex consensus $0.03/$43.1 mln)
Research In Motion (RIMM 8.35 -0.19), meanwhile, reported a Q2 (Aug) loss of $0.18 per share that was in line with the Multex consensus estimate, however, Reuters reported that RIMM cut its revenue and earnings forecasts for the remainder of the year.
4:59PM EMC Corp resumes trading (EMC) 5.01 +0.13: -- Update -- EMC -1.01 vs the 4 pm ET close to 4.00 -- a 20% drop.
4:50PM Foundry Ntwks updates guidance (FDRY) 5.53 -0.03: Sees revenue for the third quarter in the range of $75 million to $77 million; also expects earnings per share for the third quarter will be in the range of $0.04 to $0.06 per diluted share -- Multex consensus estimates are $75.0 million and $0.04 per share.
4:38PM Storage names hit on EMC warning : Prices vs the 4 pm ET close -- QLGC -1.90, BRCD -0.34, NTAP -0.32
4:26PM EMC Corp cuts Q3 forecast, will buy back up to 250 mln shares (EMC) 5.01 halted : -- Update -- Company expects to report total revenue of approximately $1.25 billion, and a loss of $0.02 per share for the third quarter -- Multex consensus estimates are $ 1.4 billion and a net loss of $0.01 per share; says IT spending environment remains "brutal".
4:10PM Research In Motion tops consensus by a nickel, announces buyback (RIMM) 8.54 -0.47: Reports Q2 (Aug) loss of $0.13 per share, $0.05 better than the Multex consensus of ($0.18); revenues fell 8.3% year/year to $73.4 mln vs the $75.3 mln consensus; also, co approved the repurchase of an additional 3.8 mln shares (about 5% of shares outstanding) over the next 12 months.
4:09PM Integrated Circuit reiterates Q1 outlook (ICST) 14.04 -1.98: Co reiterates Q1 revenue and earnings guidance. Remains on track to meet stated targets of 4-6% sequential rev growth and EPS of $0.19-$0.20 (Multex consensus $0.20).
2:20PM Asyst announces new $25 mln credit facility (ASYT) 5.20 -0.20:
2:19PM Newton's View on Stocks : Tired of watching the stock market continue its seemingly unrelenting decline. If so how about a simple physics lesson with the emphasis on simple. Sir Isaac Newton developed three laws of motion. To paraphrase the first: an object in motion tends to remain in that state of motion, unless an external force is applied to it.
So much for the physics lesson, but keep in mind that this theory can also be applied to the stock market. When in motion, which in this case means trending, the index/stock will tend to stay within the trend until there is enough force, or buy side interest in this instance, to alter the trend. There has been a continuous stream of analysts/managers paraded on various media outlets that have followed in the shoes of the infamous Joey the Bull by calling for each and every bounce to be the bottom.
Calling for a bottom has proven to be a fools game and attempting to invest (not short term trade) has for the most part proven hazardous to your portfolio. Again to keep it simple, there are a few things that can be followed from a technical perspective to increase confidence that a bottom of more importance is developing.
Newton had his three laws of motion and here are three simple things to watch for to increase the probability of a change in trend. The first is the 20 day moving average. This is an important short term trend indicator. Take note in the chart below of the Nasdaq 100. The 20 day (blue line) capped the upside for the most part from April through August and again over the last month. Other examples: SOX, INTC, MSFT, AMCC, BEAS.
The second is similar as it involves the 50 day average which closely tracks the intermediate term trend. Again from the chart note that while the shorter term bias improved (20 day broken), the intermediate term trend as indicated by the 50 day capped follow through attempts. The third is volume. An upmove that that does not develop follow through and is not accompanied by signs of accumulation (above average volume during gains) will be extremely difficult to maintain.
Until these three very simple technical developments take place, the market in motion to the downside will tend to stay in trend. Instead of listening to all the talking heads on TV, perhaps we should keep it simple and follow the theory presented by the renown physicist and stock market analyst Sir Isaac Newton. -- Jim Schroeder, Briefing.com
2:12PM Flextronics (FLEX) 7.25 +0.25: At their analyst meeting yesterday, mgmt reaffirmed Q2 guidance of $3.2-3.4 bln in revenues and $0.07-0.10 in EPS and believes they will not need to take additional restructuring charges. Analysts remain hesistant to commit fresh money ... Goldman Sachs likes shares at current levels for long-term investors but remains cautious of near-term headline risk of bad telecom news. CSFB believes a worsening demand environment in 2003 will overwhelm co's value-added activity but stipulates that balance sheet strength combined with a compelling service offering positions FLEX well for the eventual mkt turn.
1:27PM Embedded Systems : SG Cowen cuts ests for PLXS, SBSE, RSYS for the Sept qtr and FY2003 and leaves their numbers unchanged for MRCY (their top sector pick). Firm est cut on PLXS is prompted by mgmt's more cautious tone in recent meetings and preannouncements by several PLXS customers (MU, PWAV, EXTR) .. believes further deterioration in comm and a more subdued macro econ outlook will hurt SBSE in 2003 .. pushes RSYS's expectations for profitability to Q1:2003; cites co's sizable exposure to comm end mkts.
1:55PM IBM (IBM) 59.96 +0.36: Shares have had a rocky day, starting out positive, declining into the red, and breaking out into favorable territory once again. Pressure is coming from ests cuts by CSFB (see In-Play for details) and Thomas Weisel, who lowers Y02 EPS est to $3.87 from $3.97 (vs. $3.95 consensus) and Y03 EPS est to $4.25 from $4.40 (vs. $4.47 consensus) due to lack of visibility relative to higher levels of IT capital spending. Despite ests cuts, firm thinks IBM is maintaining or gaining mkt share in key enterprise software and hardware segments....shares are currently 0.6% up.
1:26PM Nasdaq Composite Intraday : -- Technical -- Index has thus far closely followed the levels highlighted in the pre-open comment (09:24) with the second support (1169) currently being probed. Intraday, without a recovery at least back through the 1175/1179 area the door will remain open for a retest/penetration of this week's low (1160). A break of this floor would initially expose minor supports at 1150 and the 1143/40 area.
12:50PM KLA-Tencor rumor pressuring stock (KLAC) 28.30 -1.15: -- Update -- There is once again speculation among traders that KLAC may preannounce. Sources are telling us that Salomon Smith Barney has commented on this rumor, noting that since business conditions are sufficiently difficult a warning would not be out of the question; however, while firm continues to expect bad news to pressure the sector as a whole in the near-term, they believe that KLAC will see orders bottom in Q4 or Q1.
11:42AM Asyst (ASYT) 4.94 -0.46: Stock currently down 8.5%... Before open, Thomas Weisel initiated with Market Perform. Given deteriorating fundamentals across industry, coupled with meaningfully reduced 300mm capital ex plans, firm thinks near-term financial performance in sector will be lackluster and 300mm production is more like to experience steady growth pattern rather than a quick ramp. Since ASYT's growth prospects are highly leveraged to 300mm, firm does not see near-term catalyst for meaningful price appreciation. Also, current pause in cycle is likely to keep earnings negative through next year, which will likely lead to book value deterioration and near term share price pressure.
11:35AM Varian Semi (VSEA) 16.26 -0.93: Stock down 5.4% today, despite Thomas Weisel initiating with an Attractive, believing VSEA will be long-term winner in the ion implant market. Firm thinks company differentiates itself through its single wafer platform and its focused product offering, and says valuation is compelling; however, believes there is no near-term catalyst to drive significant price appreciation until the timing of a semiconductor equipment recovery becomes more evident, but given current valuations, VSEA offers attractive risk/reward profile.
10:04AM ISM, Orders slightly better than expected : The ISM services index rose to 53.9% in Sep from 50.9% in August - this was better than the 51.4% consensus, though this release has a short track record and the implications of this small increase are difficult to determine. Factory Orders were a bit better than expected as well, remaining unchanged in August vs a consensus of -0.3%, though this was not a significant upside surprise for this report. The market has moved on the ISM services number - there has been a tendency to overreact to this report in both directions in recent months.
9:55AM Sector Watch: Semiconductor : The semi sector is one of the worst performers (SOX -3.8%) this morning with AMD (-22.1%) pacing the way in the wake of the warning. Sizeable retreat also seen in BRCM -7%, LSCC -7.3%, LSI -4.3%, TER -3.7%, NVLS -3.9%, MXIM -4% and KLAC -3.5%. The index is slipping back toward support in the 239/238 area with a secondary floor near 234. Little thereafter in front of the Sep low at 231.59. Resistances are at 244 and 248.
9:03AM Stocks to Watch : We're shocked -- shocked, to find that gambling is, errr.. that Wall Street has overestimated the earnings outlook for key technology companies.
The theme this morning is lowered earnings outlook for key technology companies. Specifically, influential analyst Dan Niles from Lehman Brothers says that consensus earnings estimates for Intel (INTC 14.30) for this year and next are too high and the other brokerage firms are likely to lower estimates. Current 2003 expectations are about $0.77 per share profit, which Niles expects to come down by $0.05 to $0.08. Even a $0.70 profit would represent a decent gain from this year's expected $0.53, which Niles also expects to be lowered to close to $0.50.
If Niles is right, then INTC is likely to be hit by regular news of downgrades from other firms over the weeks ahead.
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