QCOM and OPWV
By: JP Morgan H and Q
1/29/01 8:03 AM
Source: News.com
San Francisco, CA, January 29, 2001, 8:00 PST
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SPOTLIGHTED COMMENTS Level 3 Communications (LVLT/$46/Buy) mkt cap $17.263B
Headline financials beat expectations; monumental progress on network º Level 3 reported 4Q
financial and operating results with core communications revenue coming in $30 million higher than
our estimate driven by non-core items and EBITDA better across the board º We expect $400 million
in capex to be pushed out into 2001, and we have accordingly increased our 2001 capex estimate
from $3 billion to $3.4 billion º Our revenue and EBITDA estimates for 2001 remain unchanged; LVLT
will update guidance at the analyst mtg
COMPANY AND SECTOR UPDATES Ericsson (ERICY/$11/Market
Performer) mkt cap $89.91B Q4 results increase risks & reduce
potential return º In our view, risk increases with lowered visibility and
management's decision not to give operating margin guidance for
handsets and infrastructure going forward º Potential upside for bull
case reduced as 3G investment lowers 2001 and 2002 outlook º
Reducing 2001 EPS estimate by 31% to SKr 1.89 ($0.21 per ADR),
revising target to SKr 100 ($11 per ADR)
Exponent (EXPO/$10/Buy) mkt cap $69.831B Exponent's Q4 results
beat our estimates; on track for solid 2001 º EXPO reported results of
$24.4MM in revenue and $0.19 in EPS versus our estimates of
$23.5MM and $0.16 º EXPO has a number of projects underway
headed into 2001; we expect to see increased government contracts
as well as continued developments in EXPO's other core businesses
over the next several quarters º We think the stock remains cheap
trading at a discount to its book value and a CY01 P/E to growth rate
of 55%
QUALCOMM (QCOM/$74/Long-Term Buy) mkt cap $59.599B QCOM:
chip unit volumes, royalty and license revenue beat expectations º
QCOM reports pro forma Q1FY01 results of $684.0 MM / $0.29 vs.
our $767.6 MM / $0.28 º MSM chipsets exceed 15 million, a 37%
sequential increase, beating company forecasts by one million units º
Nokia's (NOK/$37/Buy) new CDMA products could weaken QCOM chipset ASP and royalty revenues
º SpinCo spin-off delayed until fall 2001; reiterate Long-Term Buy
Openwave Systems (OPWV/$69/Long-Term Buy) mkt cap $12.461B OPWV's upsell opportunities
generate revenue º New license w/ Verizon reflects strength of bus. model & potential opportunities
with new & existing carriers º We expect the stock to rise following OPWV's analyst day on
Wednesday, Jan. 31 º We reiterate our Long-Term Buy rating and 12-month price target of $80
Murata Mfg. (6981.T/¥13,260/Long-Term Buy) mkt cap ¥3,207.4B Lowering FY2001 estimates as
cellular handset inventory adj. could continue º We have lowered our estimates for FY2001 as we
now believe that cellular handset inventory adjustments will likely continue until at least May or June
2001 º We believe Murata Mfg. will continue to benefit from exposure to key cellular handset devices
º We are reiterating out LTB recommendation on the shares
Taiyo Yuden (6976.T/¥4,000/Long-Term Buy) mkt cap ¥479.9B Lowered FY2001 & FY2002
forecasts on potential deterioration in utilization º We have lowered our earnings estimates for
FY2001 and FY2002 as we now expect utilization at major operations to deteriorate about 5% º
While we expect a lower operating profit, we think it will be offset by a ¥1.5 billion boost to operating
profit resulting from the weaker yen
º We continue to believe the company has good medium-term growth potential
Hosiden (6804.T/¥3,950/Buy) mkt cap ¥287.2B Earnings estimates lowered on changes in product
mix; reiterate Buy º We have lowered our earnings estimates owing to changes to the company's
product mix º Among domestic component manufacturers, Hosiden was the only company with
consolidated inventory turnover period of less than one month at the end of September 2000 º We
expect the company to offset the negative impact of a decline in sales of cellular handset
components with higher sales of memory stick-related components º We are reiterating our Buy
recommendation and maintain our target price of ¥6,000
European Telecoms Weekly Call The wireless operators bite back º This week the French UMTS
licence process was thrown into turmoil after Suez Lyonnaise des Eaux (LYOE.PA/EUR 181/Buy)
and Telefónica Móviles withdrew their bid, claiming the licence cost is too high º We have also seen
the start of a trend we believe will continue across Europe with the link-up between Europolitan and
HI3G announced to build out a 3G network in Sweden º We highlight the potential positive
implications for the sector regarding a predicted stabilisation in bandwidth pricing as well as the
gross margin implications for moving traffic 'on-net'
Switchboard.com (SWBD/$5/Buy) mkt cap $0.127B 4Q/00 preview º We are expecting
Switchboard to report 4Q 2000 EPS of a loss of $0.19 in line with consensus estimates on February
1; we are projecting revenue of $6.5 million º With the slowed online advertising sector, our
advertising revenue projection of $3.4 million may be too high º We believe the impact of the directory
deal with America Online (AOL/$55/Buy) won't be felt until mid-2001; the company made a $13 MM
payment for the deal, thus we do expect to see marketing expenses increase much
Wireless Services Industry Auction 35: done after 24 days º The C-and F-block 1900 MHz
spectrum reauction (Auction 35) ended Friday, Jan. 26 after 24 days of bidding. After 101 rounds, the
FCC raised $16.86 billion within industry expectations ($15.0-20.0 billion) º The FCC had constructed
an auction that derived significant bidding for many key markets - which, of course, is not necessarily
positive for carriers. In many cases, the bidding valued markets far above the prices that were
perceived to be egregious in Europe; the UK UMTS auctions valued each license at $50.44 per 10
MHz Pop º We expect to see significant asset swapping as bidders swap and rationalize their total
license holdings
Hoover's Online (HOOV/$4/Market Performer) mkt cap $0.054B 3Q/01 preview º Hoover's Online is
expected to report its fiscal third quarter earnings on January 29; our EPS estimate for fiscal third
quarter is a loss of $0.42, and we expect revenue of $8.9 million º We expect Hoover's subscriber
base at 44,300 on an individual basis, and on the enterprise level we expect its subscriber base to
grow to 4,670 º We are interested to know if the slowdown in the United States has affected sales in
Europe
Electronic Brokerage Industry The weekly filter º The decimalization era begins in force as the
NYSE makes the big shift on January 29 º Online broker and clearing firm, J.B. Oxford, announces
layoffs º FOLIO(fn) introduces advisor product and forms alliance with Advent Software
(ADVS/$54/Buy) º Amid uncertainty, E*Trade (EGRP/$14/Buy) and Multex.com (MLTX/$18/Buy)
deliver earnings surprises
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