Tech Stock Analysis Updated: 22-Jan-01 General Commentary
The old guard flexed its muscle last week, as tech sector was led higher by the likes of IBM (IBM), Microsoft (MSFT), Dell (DELL) and Cisco (CSCO)... Felt like the good old days... We also saw strong gains from some of the new comers as Net portal, optical networking and fuel cell stocks posted big gains... All in all the underlying tone of the sector continued to improve, as evidenced by the growing number of new highs and by the rising a/d line.
With participation in the rally expanding, money managers being forced to move cash off the sidelines and back into techs (so as not to fall too far behind in performance), earnings numbers exceeding drastically reduced expectations, technicals improving and the Fed about to lower rates again when the month ends, there's no reason to bet against the sector at the moment. Sure it's a little overextended and it might pullback a bit if the Fed only reduces the funds rate by 25 rather than 50 basis points, but given the change in psychology, breadth and fundamentals, the big boys will use any dips as a (re)entry opportunity. This will limit the scope and duration of any pullbacks... Consequently, if you haven't already started putting money back into the sector, Briefing.com maintains you shouldn't sit around waiting for a big retreat - it isn't coming.
Earnings will again dominate trading in the week ahead... Several of the key players scheduled to report results include Texas Instruments (TXN), Lucent (LU), Qwest (Q), Level 3 (LVLT), Tellabs (TLAB), Broadcom (BRCM), Compaq (CPQ), E*TRADE (EGRP), Corning (GLW), Exodus (EXDS), JDS Uniphase (JDSU), PMC-Sierra (PMCS), Qualcomm (QCOM) and Siebel Systems (SEBL)... For a full list of the firms scheduled to report earnings this week, please see our Tech Calendar and/or Earnings Calendar page(s).
Robert Walberg
Industry Briefs
Computer Systems & Peripherals | Networking | Internet | Semiconductor | Semi Equipment | Software | Telecom Equip | Telecom Services
Computer Systems & Peripherals
Industry Members
Creative Tech (CREAF) 12 9/16 -3/16: After the close, reported Q2 earnings of $0.33 a share, $0.10 better than the First Call consensus of $0.23, vs year-ago earnings of $0.52; revenues fell 2.2% to $427.03 mln from a year-ago of $436.79 mln... CREAF +11/16 after hours.
Dell Computer (DELL) 25 5/8 +1 7/16: CSFB upgraded to BUY from HOLD rating and price target of $32. Says secular industry trends now favoring Dell's business model; sees company maintaining positive desktop revenue growth through renewed share gain during difficult industry conditions. Believes Dell will be the biggest beneficiary of the Windows 2000 upgrade cycle. ..ABN AMRO upgraded to BUY from HOLD rating and price target of $35.
EMC Corp (EMC) 77 5/16 +1 5/16: Goldman Sachs says more confident about numbers going into earnings report; says while it picked up a little mixed info from the U.S. side of the business in Dec. qtr, it was minor relative to other companies; notes that international data points have been positive all along.
Emulex (EMLX) 101 1/8 +4: AG Edwards upgraded to BUY from ACCUMULATE rating and price target of $125 based on company's bullish outlook for 2001; Says EMLX is the "fifth horseman" of storage along with (EMC +1 5/16), (BRCD +2), (NTAP +3/16) and (VRTS +9/16); company recently boosted its guidance for sequential revenue growth in fibre channel revenues from 20-25% to 25-30%.
Sun Microsystems (SUNW) 30 7/8 -4: UBS Warburg says "rocket ride is over," after company reported disappointing orders and revenues after the close on Thursday. Firm reduced its Q3 earnings view to $0.15 from $0.16 and Q4 outlook to $0.20 from $0.24... Sanford Bernstein downgraded to MARKET PERFORM from OUTPERFORM and SG Cowen downgraded to NEUTRAL from BUY... Salomon Smith Barney reiterated its NEUTRAL rating while J.P. Morgan and ABN Amro reiterated BUY ratings.
Networking
Industry Members
Cisco Systems (CSCO) 40 3/8 -1 1/2: JP Morgan believes that Cisco will make its quarter, and while adding that CSCO might reduce revenue guidance, JPM notes that this is probably already in the stock.
Internet
Industry Members
AOL Time Warner (AOL) 53.80 +4.03: Board of Directors approved a $5 bln stock buyback program and a $10 bln shelf registration. Mrgn Stnly Dn Wttr resumed STRONG BUY rating and price target of $75. Firm said that AOL/Time Warner is firm's best money making idea and noted that it is firm's top pick in both the Internet: New Media & eCommerce and Broadband & Entertainment sectors. Also, company named Ray Oglethorpe, previously President of AOL Technologies, to President of America Online.
Ariba (ARBA) 38 1/4 +1 1/8: CIBC Wrld Mkts downgraded to BUY from STRONG BUY due to changing market dynamics and intense competition. Analyst said the center of the B2B universe is not transaction (procurement), it is the supply chain. This is not ARBA's strength and the ability to create the dominant B2B platform without providing the most important components is severely limited.
Blue Martini (BLUE) 10 3/16 -1/2: Thomas Weisel downgraded to BUY from STRONG BUY and lowered price target to 20; while firm feels that downgrade will be temporary as fundamentals are intact, does see a change in enterprise spending patterns.
Broadbase Sftwr (BBSW) 6 3/16 -1 5/16: First Union Sec downgraded to MKT PERFORM from STRONG BUY. Broadbase's DSO number grew significantly in the quarter from 90 days to 146 days. Broadbase lowered its guidance for fiscal 2001 citing macroeconomic uncertainty with its systems integration and channel partners. Analyst lowered 2001 estimates to $125.3 million revs and ($0.16) per share from $144.8 million from ($0.05)/share. Also 1Q01 estimates were lowered from $25.0 million and ($0.08) per share to $22.5 million and ($0.11) per share.
Commerce One (CMRC) 28 1/32 +6 11/32: Bear Stearns' Ripple Effect noted that while revenue growth was impressive, it was costly in terms of sales and marketing and increased share count. Also noted concern about decrease in e-Procurement customer additions; firm reiterated BUY and $35 target, but recommended waiting for lower entry points if stock trades in high $20s near term. Pacific Growth Equities initiated coverage with a BUY rating and price target of $50 citing strong business momentum with solid Q4 results and sees a number of strategic initiatives moving forward. CIBC Wrld Mkts downgraded to BUY from STRONG BUY. Sees market dynamics changing and said the center of the B2B universe is not transactions, but the supply chain, which is not CMRC's strength; company's ability to create the dominant B2B platform without providing the most important components is severely limited.
Critical Path (CPTH) 9 -11: Stock slammed 55% after a slew of downgrades. Merrill Lynch downgraded to NEUTRAL from BUY after company reported disappointing Q4 results; lowered 2001 revenue forecast to $250 mln from $305 mln and EPS view from $0.40 to a loss of $0.15. Goldman Sachs downgraded to MKT OUTPERFORM from RECOMMENDED LIST after the company reported disappointing Q4 results and reduced guidance for FY01. JP Morgan downgraded to LT BUY from BUY. Lowered 2001 revenue and EPS estimates to $255 mln from $306 and ($0.32) from $0.40, respectively. FAC/Eqts First Albany downgraded to NEUTRAL from BUY. Lowered EPS estimate to ($0.16) in Q1 and ($0.28) for FY01 from $0.03 and $0.39 respectively. Sees limited visibility going forward and says management's credibility has to be questioned after the company went out of its way to reaffirm guidance in mid-December.
Drugstore.com (DSCM) 2 5/8 +5/32 : After the close, company announced the elimination of approximately 125 jobs through layoffs and expected attrition as well as reductions in planned marketing expenses. Company also announced David Rostov will resign as Vice President of Finance and CFO to pursue other opportunities; Bob Barton, currently Vice President and General Manager of Pharmacy Operations, will assume the role of Vice President of Finance and CFO.
eBay (EBAY) 50 1/8 +3 1/4: W.R. Hambrecht upgraded to STRONG BUY from BUY rating and price target of $60. Said eBay is firm's favorite mid-cap idea for 2001 based on company's positive momentum, recently announced price increase and acquisition of the Internet Auction Company. Stock has moved 72% over last eight sessions. See Story Stock for additional details.
Entrust Tech (ENTU) 20 5/16 +3 5/8: Heard some trading floor rumors that Checkpoint (CHKP) will acquire ENTU, but a source at one brokerage firm told us that they do not think it will happen, and that ENTU might just be trading up ahead of a conference starting Sunday with some of their partners.
Inktomi (INKT) 15 3/8 -2 1/8: Friedman Billings downgraded to ACCUMULATE from BUY based on a lack of near-term visibility for the company's business and concern about near-term market demand for INKT products. Lowered FY01 revenue forecast to $297 mln from $464 mln and EPS estimate to a loss of $0.01 from a profit of $0.31.Also, Dain Rauscher Wessels downgraded provider of scalable software applications to NEUTRAL from BUY AGGRESSIVE. See Story Stock for additional details.
Kana Comms (KANA) 7 7/8 -1 1/2: Wit SoundView downgraded to BUY from STRONG BUY based on the sudden resignation of KANA's CEO; feels compelled to pull back their rating on the company due to the increased potential of business execution risk over the next few quarters. Believes the immediate management changes may impact the execution of the business model in a tighter environment.
Openwave (OPWV) 49 -7/16: Pacific Crest reiterated BUY citing company's dominant position in the market and the expected rapid growth in mobile communications; analyst sees stock performing best over the long-term.
Prodigy Comms (PRGY) 5 +1: ISP inked strategic agreement with SBC Comm (SBC) making Prodigy the preferred wholesale ISP and portal for SBC. Under agreement, PRGY will receive monthly per subscriber fees to provide SBC a wholesale ISP service; SBC will provide a $110 mln line of credit to PRGY; SBC increased minimum subscriber commitment to Prodigy to approx. 3.75 mln DSL and 375,000 dial-up subscribers over the next 9 yrs.
Veritas Software (VRTS) 99 1/4 +9/16: Sources at CSFB told Briefing.com that Veritas has signed a multi-year, $60 mln deal with AOL (AOL); we have no confirmation of this deal.
Vignette (VIGN) 7 19/32 -7/32: USB Piper Jaffray downgraded to NEUTRAL from STRONG BUY based on reduced visibility and profitability going forward.
Semiconductor
Industry Members
Altera (ALTR) 29 13/16 -2 7/16: ABN AMRO downgraded to ADD from BUY. Says trough is deeper and recovery slower than expected; with regard to the semis, feels investors should focus on pure high-performace analog IC stocks such as Linear Technology (LLTC 62 1/2 -2 9/16) and Maxim Integrated (MXIM 68 3/4 -5/16)... Lehman lowered 2001 earnings view to $0.95 from $1.15 following chip maker's report of disappointing Q4 results.
Conexant (CNXT) 17 3/16 -1 9/16: Merrill Lynch, Robertson Stephens, and SG Cowen all downgraded CNXT in response to company issuing lowered guidance for Q1 after Thursday's close and announcing the delay of infrastructure business IPO.
Lattice Semi (LSCC) 24 3/8 -3/8: Late Thursday night, company reported Q4 earnings of $0.34 a share, in line with the First Call consensus of $0.34, vs year-ago earnings of $0.21; revenues rose 31.1% to $150.79 mln from a year-ago of $114.99 mln.
Marvell Tech (MRVL) 28 -1/4: Company and Galileo Technology (GALT 18 5/8 -3/16) announced shareholder approval of their pending merger.
Micron Tech (MU) 46 7/16 +2: Prudential Securities upgraded to STRONG BUY from ACCUMULATE and raised price target to $75 from $38; firm says it sees some evidence of price stabilization with increases seen for branded DRAMs. While this may not lead to a sustainable price advance, it does suggest that a bottom is in place.
Transmeta (TMTA) 24 11/16 +1 5/8: Morgan Stanley Dean Witter said TMTA's EPS shortfall was driven entirely by a lower sharecount, which resulted in a higher loss per share; the company reported a Q4 EPS operating loss of ($0.20), greater than firm's estimate of ($0.15) and the consensus of ($0.16); had the sharecount been 117 mln based on management's previous guidance vs. the 86.7 mln reported, the loss per share would have matched firm's estimate; firm maintained its OUTPERFORM rating.
Semi Equipment
Industry Members
Credence Systems (CMOS) 26 5/8 -1/8: ABN AMRO downgraded to ADD from BUY after the company forecasted a 40% sequential drop in sales for the January quarter; firm maintained a positive outlook on the stock's performance long-term, but expects increased volatility over the next 2-3 months. Sees company remaining profitable through this period and believes investors will be willing to pay a premium P/E on depressed earnings.
Software
Industry Members
BARRA, Inc. (BARZ) 50 1/16 -9 1/4: JP Morgan blames weakness in stock to profit taking following major advance in December. Firm feels that investors should use pullback as an opportunity to purchase the stock.
BMC Software (BMCS) 32 1/8 +1 13/16: Deutsche Banc Alex.Brown upgraded to BUY from MKT PERFORM. Cited rapid earning gains expected in coming quarters, increased visibility from longer-term contracts, strong cash flow and a solid balance sheet.
Take-Two (TTWO) 12 1/2 +11/16: Analysts bullish on interactive software company amid buzz created by Sony PlayStation 2 and Microsoft Xbox, reports Business Week. One analyst calls TTWO a phenomenal growth story. Wedbush Morgan's Miguel Inbarren forecasts earnings to rise 59% to $1.40 a share in 2001.
TeleTech Hldngs (TTEC) 15 9/16 -3 1/4: Raymond James downgraded to MKT PERFORM from BUY after the company issued a warning after the close on Thursday.
Telecom Equip
Industry Members
ADC Telecom (ADCT) 15 9/16 -5 3/4: Before the open, ADCT said it sees Jan. qtr earnings of $0.05-$0.07 vs $0.12 First Call mean. Company revised annual growth assumptions for sales and earnings to 15% from previous guidance of 25-30%. ADCT attributes weakness to lower spending by communications service providers... Wachovia Securities, Stephens Inc., Josephthal & Co., ABN Amro, and SG Cowen all downgraded ADCT.
JDS Uniphase (JDSU) 60 13/16 +1/2: Salomon Smith Barney believes that Nortel's (NT 40 +3 5/16) inventory levels are a flag to the 2H01 outlook for JDSU; in the December quarter NT's inventory levels jumped and the use of internally manufactured optical components accelerated; believes NT built inventory levels that exceeded Q4 needs and will work to bring these levels down; firm says they are concerned about a material dip in demand for optical components that could negatively impact the outlook for JDSU.
Nokia (NOK) 39 1/8 -1 7/8: Cellphone maker said it had won a GSM mobile network expansion deal from Chinese Shanxi Mobile Communication Corporation, no financial details were provided... Separately, Morgan Stanley Dean Witter downgraded both Nokia and Ericsson (ERICY 12 7/16 -3/16) to NEUTRAL from OUTPERFORM.
Sonus Networks (SONS) 40 15/16 +3 9/16: Prudential upgraded to STRONG BUY from ACCUMULATE following company's report of better-than-expected quarterly results; firm increasied 2001 revenue est. to $195 mln from $158 mln.
Telecom Services
Industry Members
British Telecom (BTY) 106 15/16 -1 7/16: UK's dominant phone company said it was confident it would not need to cut its dividend and did not expect to see the conditions its group treasurer said might bring about a lower payout.
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