Briefing.com - Tech Stock Analysis - General Commentary
Updated: 05-Jan-01
General Commentary
Reality returned to the marketplace on Thursday, as rejoicing over the Fed rate cut was replaced with rumblings over additional earnings warnings... But the fact remains that the rate cut diminishes the impact of future earnings warnings, in that with rates coming down investors can start to look beyond the disappointing Q400 and Q101 numbers to when comparisons will begin to look better.
That's not to say that the tech sector is out of the woods, just that the intermediate-term outlook is now much more sanguine... With much of the bad news already reflected in current prices and the Fed now on the side of investors, the additional downside risk has been materially reduced... Consequently, Briefing.com expects the money flows into tech to gradually escalate over the next couple of months.
We're already seeing improved flows into the telecom services and hardware sectors - two of the hardest hit groups late last year... Some of the gainers included Sprint (FON 26 1/8 +1 9/16), Western Wireless (WWCA 42 13/16 +2 1/16), Qwest (Q 46 +2 1/2), AT&T (T 21 +7/8), Sprint PCS (23 7/8 +3 3/16), Gateway (GTW 21.75 +2.85), Apple (AAPL 17 1/16 +11/16) and Read-Rite (RDRT 5 31/32 +1 15/32).
Given negative news cycle still circulating around Net and optical networking group, money might be a little slower to come back to these names but valuations are much more compelling now than at any time in past couple of years... As such, could see money start returning to groups more aggressively late this months once warnings season is behind us.
Finally, SOX index bumped up against stubborn resistance yesterday and sold off... However, if index can get above 700 it would be yet another bullish signal for techs as many traders use it as a barometer for overall sector.
Robert Walberg
Industry Briefs
Computer Systems & Peripherals | Networking | Internet | Semiconductor | Semi Equipment | Software | Telecom Equip | Telecom Services
Computer Systems & Peripherals
Industry Members
Adaptec (ADPT) 12 1/8 +11/16: Company announced that its wholly-owned software products subsidiary Roxio, has requested the withdrawl of its IPO registration.
Apple Computer (AAPL) 17 1/16 +11/16: Trading floor rumors that Sony (SNE 73 1/2 -1 1/16) will buy Apple, but heard lots of skepticism about this one, with one analyst reportedly saying that these rumors crop up every time Apple trades down to book value.
Read-Rite (RDRT) 5 31/32 +1 15/32: Expects to release greater than expected earnings and revenues for Q1... Says will return to profitability this qtr and will exceed EPS estimates; sees sequential revenue growth of 30%.
Networking
Industry Members
There was no news of note in the Networking industry.
Internet
Industry Members
barnesandnoble.com (BNBN) 2 3/16 +11/32: Announces the creation of Barnes & Noble Digital, an electronic publishing imprint that will create a direct link between authors and their readers, give authors a greater share of the income from their works and lower retail prices in an effort to build the emerging market of eBooks.
CacheFlow (CFLO) 13 9/16 -4 9/16: Morgan Stanley and Kaufman Bros downgrade stock in response to warning from Inktomi (INKT 13 7/8 -4 5/8)... For details, see Upgrades/Downgrades page.
Commerce One (CMRC) 21 15/16 -1 7/16: Prudential believes concerns about slowing IT spending are overdone; feels that B2B stocks are at or near their bottom as valuations are now within range of traditional software metrics; CMRC remains firm's Single Best Idea in space, carrying a STRONG BUY rating.
Critical Path (CPTH) 22 35/64 -3 37/64: Chase H&Q reiterates STRONG BUY. Believes that issues impacting Tumbleweed (TMWD 3 1/8 -1/8) and Commtouch (CTCH 2 3/16 +1/16) are company specific and not related to CPTH; says that although macro-economic slowdowns have been justified in pockets of the infrastructure market, firm's own checks indicate that there will continue to be significant IT budgets dollars allocated for Internet-based messaging initiatives.
CyberSource (CYBS) 2 3/32 +15/32: After the close, company warns for Q4; sees revenues below estimate; current EPS estimate is ($0.45). Revenues are expected to be $8.1 to $8.4 mln, down from prior guidance of $10.2 to $10.5 mln.
eToys (ETYS) 5/32 -1/16: After the close, company announces 700 job layoffs and the closing of operations in the California and North Carolina warehouses. Company will also shut down its UK site and cease European operations. ETYS no longer anticipates profitability by FY2003.
Inktomi (INKT) 13 7/8 -4 5/8: Merrill Lynch analyst Henry Blodget cut FY01 earnings to $0.16 from $0.30 (revenue est. cut 25% to $344 mln) after INKT issued earnings warning... Introduced FY02 estimate of $0.50; analyst expects INKT to rebound in 2nd-half of yr, but does not see catalysts for the next 3-6 months.... Similarly, Dain Rauscher Wessels downgraded to BUY AGGRESSIVE from STRONG BUY AGGRESSIVE following earnings warning; believes that visibility with new products and markets is relatively low; sets a 12-month price target of $25.
Keynote Systems (KEYN) 16 15/16 -11/16: After the close, company warns for Q1; sees revenues below estimate; current EPS estimate is $0.11. Revenues are expected to be $13.0 to $13.2 mln, which is lower than the $14.0 to $14.5 mln in revenue the company previously expected. Company cites a decline in subscription revenue from the Internet service provider business.
Macromedia (MACR) 44 5/8 -16 23/64: UBS Warburg downgraded to HOLD from BUY based on more conservative outlook. On the basis of lower revenue assumptions, firm reducing its 2002 earnings view to $1.50 from $1.60 (First Call mean $1.60). Cuts price target to $64 from $83.
Sapient (SAPE) 15 1/16 +3/8: After the close, company warns for Q4; sees EPS of $0.10; current EPS estimate is $0.12; expects revenue of $139 mln vs. $143 mln consensus estimate. Sapient attributed the results to two principal factors: slower, more deliberate spending on the part of its large, global clients and continued reduction in the proportion of its revenues derived from dot.com clients... Stock trading down nearly 4 1/2 points in early after hours trading.
Vitria Tech (VITR) 3 31/32 -4 1/32: Downgraded in reaction to earnings warning... See Upgrades/Downgrades page for details.
Semiconductor
Industry Members
Centillium Comms (CTLM) 21 +1 5/16: Another supplier of DSL chips whose shares are being boosted by Globespan earnings reiteration.
Globespan Semi (GSPN) 28 61/64 +15/32: Expects to meet or exceed consensus estimate for revenues and pro forma EPS for the quarter ended December 31, 2000.
inSilicon (INSN) 5 1/2 -2: Designer of systems-on-a-chip technology warns Q1 will be $0.02-0.04 per share, current First Call estimate is $0.06; expects to report revenue of approximately $6 mln, also below expectations; cites the delay of several significant anticipated customer license contracts at quarter-end.
Phoenix Tech (PTEC) 13 1/4 unch: Announces that earnings shortfall by 71%-owned inSilicon (INSN) will reduce PTEC's results by 5-7 cents per share.
Semtech Corp (SMTC) 22 3/16 -1/16: After the close, company warned for Q4; sees revenues below estimate; current EPS estimate is $0.23. Q4 revenue will be sequentially flat with Q3. Company still expects to achieve analysts' consensus earnings estimates of $0.23.
Semi Equipment
Industry Members
Brooks Automation (BRKS) 33 -3/4: After the company announces that it has received a multi-million dollar order from a top ten semiconductor company to provide the company with 300mm sorter technology.
Novellus (NVLS) 39 1/16 -2 1/2: Tucker Anthny Cap Mkts downgraded to MKT PERFORM from STRONG BUY. Says recession forecast points to near-term weakness in the equipment stocks.
Software
Industry Members
BMC Software (BMCS) 22 5/16 +6 11/16: Prudential upgraded to STRONG BUY from HOLD and raised price target to $28.50 from $22. Upgrade follows announcement by BMCS that Q3 earnings will come in between $0.18-$0.20 vs $0.16 First Call mean.
Computer Assoc (CA) 25 7/8 +4 9/16: Prudential upgraded to ACCUMULATE from HOLD based on improving fundamentals in the mainframe software market; believes BMCS positive preannouncement could signal a bottom for CA and the mainframe software group.
PC-TEL (PCTI) 8 11/16 -2 3/16: After the close, company warns for Q4; sees revenue below estimates due to the rapid deterioration in PC demand. PCTI expects to report revenue of approximately $16.5 to $17.5 mln. Company expexts Q4 loss of of $0.07 to $0.10 per share, veversus consensus estimate of $0.20 profit. Company says weak demand creates uncertainty for the first half of 2001.
Telecom Equip
Industry Members
Alcatel Alsthom (ALA) 58 -3/8: Frost Securities downgraded to BUY from STRONG BUY rating and price target of $85... Weak demand from a more cautious inventory management scenario by the service providers could likely impact the near-term growth of Alcatel.
Brooktrout Tech (BRKT) 10 7/8 +1: After the close, company warned for Q4; sees revenues of $33-35 mln and EPS of approximately $0.03 to $0.05 versus $0.31 estimate. Company cited the general slowdown in the telecommunications equipment market, as well as the lower than expected performance of Brooktrout Software.
Motorola (MOT) 23 1/16 -1 1/16: A.G. Edwards downgraded to MAINTAIN from ACCUMULATE, citing valuation; says with shares trading around firm's $22 price target and very limited visibility into MOT's earnings outlook, feels that investors should wait for additional info before adding shares beyond this pt.
Next Level (NXTV) 11 +1/16: After the close, company warns for Q4; sees loss of about $0.22 per share; current EPS estimate is ($0.12). Company cites reduced revenue from Qwest and slower than anticipated customer development in Korea.
QUALCOMM (QCOM) 78 15/16 -5 1/8: According to CSFB Asian technology analyst, total net subscriber additions for Korean market declined from 555,000 to 417,000 in Oct and Nov; firm believes that slow market conditions and maturity of this market can continue to limit upside and put pressure on high end estimates; firm maintains HOLD rating... Separately, Banc Of America Securities maintains BUY rating and $125 target price, but says that datapoints from South Korea are suggesting a fall-off in Korean cellular subscriber adds for the month of December; limits upside for December; creates a "hole" for March.
Sycamore Ntwks (SCMR) 39 -3/16: ABN AMRO started coverage with a BUY rating and near-term price target of $57; believes that SCMR as demonstrated an end-to-end portfolio for optical networking that few companies can offer, with the exception of CIEN.
Telecom Services
Industry Members
British Telecom (BTY) 92 3/4 +1 5/8: The UK's largest phone company said it is in talks to sell around $3 bln worth of real estate in a move designed to lower debt which is expected to reach a total of $45 bln by March this year.
Global Crossing (GX) 21 3/16 +3 1/2: Have seen major surge in volume on trading floor rumors that Global Crossing is "in play." Volume totalled 29 mln shares vs avg. daily turnover of 10 mln.
Sprint PCS (PCS) 23 7/8 +3 3/16: Announced an agreement with Palm (PALM 28 +1/8) to market and sell wireless solutions for handhelds using the Palm OS platform; represents the first CDMA solution for Palm handheld computers that will enable access to real-time information on the nation's largest all-digital voice and data PCS network.
Verizon Comms (VZ) 54 11/16 +1 9/16: Announces that Verizon Wireless added more than 1.2 million net new customers during Q4. For the year, total customers grew 16% to 27.5 mln.
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