Network Equipment . . . Cisco Systems has authorized up to $5 billion in additional repurchases of its common stock. As of January 25, the networking equipment giant had already bought back $4.4 billion worth of common stock under its existing $8 billion authorization. "We believe repurchasing Cisco stock while maintaining a strong cash balance is in the best interest of our shareholders," said CFO Larry Carter.
T. Peter Andrew at A.G. Edwards views Cisco Systems' $5 billion increase to its stock buyback program as a "good use of cash and a positive vehicle for supporting the share price." Andrew added that while the near-term business environment continues to be challenging, Cisco should be a "primary benefactor" of expanding budgets following the resolution of geopolitical issues.
Cisco acquired private SignalWorks, developer of advanced software for high-performance audio capabilities for IP telephony systems. IP telephony is one of Cisco's new growth markets. Number of employees likely to be less than 20. Considering the small price tag Cisco is paying, and has been paying for its recent acquisitions, an increase in the share buyback program makes sense.
Conversations with key handset OEMs and distributors indicate that the U.S. handset market in 1st quarter is above most expectations. This is an extension of subsidy programs and attractive new product cycles could maintain this momentum throughout year. Latest data points from Nokia, Andrew suggest a weaker mobile infrastructure market in 1st quarter, but we see some encouraging signs of demand in U.S., China and India later this year. Evidence of strength in U.S. handset market and progress on sub-$100 handset development for low-end markets support continued optimism for Qualcomm. Relative strength in certain segments of the mobile infrastructure market could help Lucent maintain revenues near its $2.5 billion target in 2nd quarter.
Semiconductors . . . Feb B2B was 0.99 vs. 0.94 in Jan. Front-end (FE) 0.98 vs. 0.95 and Back-end (BE) 1.03 vs. 0.92. Industry B2B has been improving gradually since bottoming at 0.78 in October 2002. Total bookings were up 6% month/month while billings were up 1% (data based on 3-month averages). Orders were up sequentially 5% in the FE and 10% in the BE. The improvement in orders was consistent with our expectation that industry orders will be up
5-10% Quarter/Quarter in 1st quarter 2003. While any improvement is encouraging, we caution investors not to read too much into the February data as majority of orders are traditionally recorded in the last month of the Q (March for most of the companies and April for AMAT). We do not expect stocks to move on this.
Tim Mahon at CS First Boston has upgraded Advanced Micro Devices to "neutral" from "underweight" due to the company's high exposure to the flash memory market, which he believes will be the fastest growing chip sector in 2003. Mahon also believes that the company's imminent spinout of its flash business -- which he expects to be announced next week -- will be viewed favorably. He currently has a $6.50 price target on the stock.
Microchip preannounced revenue to decline 3-4% Quarter/Quarter to $164-166 million versus Street $172 million. Weakness in Asia (primarily Korea) and at North American OEMs. Microchip Technology (maker of semiconductors used in cars and toasters) said profit in the fourth quarter ending March 31 will be 17 cents a share. Analysts had expected an average of 18 cents. MCHP has higher auto exposure (20%) than other analog companies. (mid single digits). Meanwhile, Europe is strong (+11% Quarter/Quarter) as well as N. American distribution (57% of rev.). Investors should watch auto end market and Asia. No change in our 2003 analog shipments +14% estimates. Analysts remain positive on Analog Devices and Linear Tech as MCHP’s problems tied to automotive and co-specific issues. Have 50% of revenue. from N. American distributors.
Pacific Growth believes Semi valuations ahead of fundamentals. With stocks priced for perfection, firm downgrades Altera, Xilinx, Linear Tech, Maxim Ingrated to Underweight from Equal Weight. The firm is seeing increasing signs of weakness of the end-markets for semiconductors.
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