[Briefing.com] Tech Stock Analysis Updated: 05-Feb-01 General Commentary
Buyers stepped to the sidelines on Friday creating a one-way market headed south... The tech dominated Nasdaq staged its largest one-day retreat since the Friday following the last rate cut... Hmmm..
Looking back to the January 3rd cut, the sector rallied big on the day of the surprise announcement, only to drop 13% over the next three sessions (from peak to trough)... For what it's worth, a similar move in response to last week's rate cut would bring the Nasdaq back to the 2500 area... Interestingly enough, that also happens to represent the 62% retracement of the 1/3/01 to 1/31/01 rally.
Fortunately, there's at least one good support level before we get to that floor... It's at 2618... Unfortunately, based on the lousy price action exhibited by many leadership names such as Cisco (CSCO), Brocade (BRCD), PMC-Sierra (PMCS), Siebel Systems (SEBL), Corning (GLW), i2 Tech (ITWO), Sun Microsystems (SUNW) and Broadcom (BRCM), we're not holding out much hope that 2618 will act as a rallying point.
With more and more traders growing nervous about the prospects of a prolonged economic/earnings slump, Briefing.com contends that the Nasdaq will probably approach the 2500 area before snapping back.
Whether or not the index bounces off of 2500 could depend largely on Cisco's earnings report scheduled for release after Tuesday's close... If the company were to guide future estimates materially lower could keep buyers from wanting to return... On the other hand, with the stock having dropped 19% over the past couple of weeks it's safe to assume that the market is pricing in some bad news already.
Other earnings reports of note this week include TriQuint (TQNT), XO Communications (XOXO), CNet (CNET), Microstrategy (MSTR), Electronic Data Systems (EDS), Worldcom (WCOM), Network Appliance (NTAP) and ONI Systems (ONIS)... See Briefing.com's Earnings Calendar for consensus estimates, actuals, year-ago comparisons and percent revenue change.
Robert Walberg
Industry Briefs
Computer Systems & Peripherals | Networking | Internet | Semiconductor | Semi Equipment | Software | Telecom Equip | Telecom Services
Computer Systems & Peripherals
Industry Members
Dell Computer (DELL) 25 3/16 -3/4: Speaking at a conference in Copenhagen, Michael Dell said on Friday that he expected the company to post total sales close to $32 bln in the financial year just ended, and that business was growing very rapidly with demand for computer servers particularly strong.
Handspring (HAND) 42 -4: Banc of America Sec initiated coverage with a BUY rating and price target of $60.
StorageNetworks (STOR) 27 1/2 -2 1/8: Robert W. Baird initiated coverage with a MKT OUTPERFORM rating and price target of $36 based on strong historical growth, company's bullish prospects and strength of storage services market as a whole. Does caution investors of near-term risks, including dot-com exposure (45% of Q4 revs) and a February 20th lockup expiration making 76 mln insider shares available for sale.
Sun Microsystems (SUNW) 29 3/16 -1 15/16: Announced plans to acquire privately held, LSC, Inc in a stock-for-stock transaction valued at approximately $74 million. LSC is a developer of high-performance file systems and data storage software.. Company's 3-day analyst meeting to begin on Monday.
Networking
Industry Members
Comp. Network (CMNT) 17 13/16 -12 1/16: SG Cowen downgraded to BUY from STRONG BUY. Q4 rev to be about 5-6% below estimate, blaming weakening economy. SAN product sales looked flattish Q/Q, though up nearly 2X Y/Y against disappointing year ago... CE Unterberg Towbin downgraded to NEUTRAL from BUY. Sees stock landing in the $20 area near-term with limited upside to $24-25 until numbers can be beaten again. Would be less aggressive selling stock below $20 given CMNT's strong balance.
Internet
Industry Members
AOL Time Warner (AOL) 47.79 -2.04: Heavy put buying in stock amid concerns that weakness in the advertising market will drag down EBITDA.
Critical Path (CPTH) 10 1/16 -13/16: Stock slammed 60% in pre-market, then remained halted for rest of the day. Company formed a special committee of the Board to conduct an investigation into the company's revenue recognition practices. CPTH has discovered a number of transactions that put into question the company's financial results. Board of Directors placed on administrative leave David Thatcher (President) and William Rinehart (VP worldwide sales). There were downgrades aplenty. Goldman Sachs downgraded to MKT PERFORM from MKT OUTPERFORM. Lehman Brothers downgraded to MKT PERFORM from STRONG BUY. The first class action suit was expected to be filed today. See Story Stock for additional details.
Disney-Internet (DIG) 5.90 -0.16: Company said it will not sell its GO.com customer list to a third party when GO.com officially shuts down.
NBC Internet (NBCI) 3 9/16 +1/32: After the close, NBCI announced that they have rescheduled the reporting of Q4 and FY00 results to after market close on February 13 to allow the company more time to complete the information necessary to provide adequate guidance related to 2001 performance.
RSA Security (RSAS) 58 3/4 -3: Wit SoundView reiterated its BUY rating following company's announced acquisition yesterday of privately-held PKI software vendor Xcert for $67.5 mln; firm views acquisition as a positive development for RSAS; thinks Xcert's Sentry CA product will complement RSA Security's existing Keon product line.
Terra Lycos (TRLY) 14 3/16 -1 3/8: Dain Rauscher Wessels downgraded to NEUTRAL from BUY AGGRESSIVE after CEO, Bob Davis, resigned and many other executives have been repositioned in the company. Reduced fiscal 2001 revenue and EBITDA per share estimates to $750 million and ($0.45) from $900 million and ($0.21), respectively, citing lack of near-term catalysts.
TIBCO Software (TIBX) 38 -1 1/8: CSFB initiated coverage with a BUY. Firm positve on the stock as company is gaining traction with deployments of its their core messaging software, Rendezvous Bus, at over 1,000 locations worldwide; company has a relationship with Cisco (CSCO) to implement Rendezvous technology within Cisco's network operating systems to enable messaging; firm believes this provides significant up-sell potential for TIBX's software platform. Stock is down 24% since midday Tuesday.
VeriSign (VRSN) 69 3/16 -5 13/16: JP Morgan reiterated BUY following yesterday's analyst meeting; focus of meeting was outlining the go to marketing strategy; focus of '01 comprised of 6 key objectives: broadening customer relationships, launching new services, new strategic relationships, expanding international model, realizing synergies from Network Solutions acquisition and driving operating leverage.
Semiconductor
Industry Members
Altera (ALTR) 29 11/16 -1 3/4: UBS Warburg initiated coverage of chip maker with a BUY rating and 12-month price target of $36, based on 29x estimated 2002 earnings of $1.23; firm sees compounded annual growth of about 17% for Altera in calendar 2001 and 2002.
Mitel (MLT) 9.31 -0.44: Merrill Lynch downgraded to NT NEUTRAL from NT ACCUM. Expects that the transition to a pure-play semi company will be rocky; weak end-user demand, inventory buildups and decreased visibility will likely impact results for the next few quarters.
National Semi (NSM) 24.75 -2.56: Merrill Lynch reiterated NT NEUTRAL. Lowered earnings estimate for 2001 to $1.79 from $2.01 after company lowered its revenue and EPS guidance for the February quarter as a result of lagging turns orders in both its wireless and PC businesses; firm sees revenues declining 20% sequentially to $476 million, which is $60 million under previous forecast; cites lack of visibility and does not anticipates ordering patterns improving in the near term.
Silicon Storage (SSTI) 13 1/16 -1 1/2: First Union Securities downgraded to BUY from STRONG BUY after company reported a Q4 shortfall after Thursday's close; firm also reduced estimates to reflect cautious outlook for FY01 and revised price target to $20, but sais it continues to like SSTI story
Stratos Lightwave (STLW) 12 7/8 -1: Merrill Lynch downgraded to NT NEUTRAL from NT ACCUMULATE following Thursday's night's press release that updated STLW's outlook... STLW said it should meet expectations for Q3 (Jan) but the outlook going forward is more unclear than expected. Uncertainty will most likely remain around the extent of the inventory correction at Cisco and the level of demand at other telecom customers for a couple of quarters. Unclear as to the timing of a return of meaningful sequential sales growth... USB Piper Jaffray downgraded to BUY from STRONG BUY; lowers price target to $18 from $30; reduced F01 EPS and rev estimates from $0.25/$151.3 mln to $0.24/$142.5 mln; F02 estimates from $0.40/$236.9 mln to $0.35/$193.7 mln.
Semi Equipment
Industry Members
Rudolph Tech (RTEC) 44 -4 1/16: Stock sold off 8% in response to SEC filing disclosing planned sale of up to 3.5 mln shares in a secondary offering. Of the shares offered, 2.5 mln to be sold by stockholders.
Software
Industry Members
Activision (ATVI) 20 +1 1/2: USB Piper Jaffray upgraded to STRONG BUY from BUY; upped price target to $27 from $17 citing strong profits Good visibility on FY02 strengthens firm's confidence; said next video game cycle will be powerful; increased FY02 revs to $610 mln from $555 mln and raised EPS estimates to $0.77 from $0.66. See Story Stock for additional details.
Business Objects (BOBJ) 79 9/16 +6 3/4: Stock up 9% after reporting better than expected earnings Thursday. Company forecasted per share earnings of $1.20 - 1.25 this year up from $1.15 - 1.20 along with higher sales. Wit SoundView reiterated STRONG BUY rating and price target of $15 after company posted strong quarter; said the strength in the European economy as well as the Euro will contribute to out performance in 2001 for the company.
eFunds (EFDS) 12 11/16 +5/8: Reported Q4 earnings of $0.12 a share, $0.02 better than the First Call consensus of $0.10, vs year-ago of breakeven; revenues rose 37.4% to $112.67 mln from a year-ago of $82.02 mln. Company expects revenue growth of 25-30% in 2001 and gross margins are expected to approximate 39 to 41 percent of revenues. EPS for 2001 is targeted at $0.86.
Informatica (INFA) 30 -1 1/4: Merrill Lynch reiterated NT ACCUM after mangement provided continuing bullish outlook.
Manugistics (MANU) 47 3/16 -4: Thomas Weisel initiated coverage with a BUY. Said with large enterprises focused on collaborative supply chain opportunities created by the Internet, MANU is poised to benefit from the forecasted 42% CAGR in $9 bln supply chain management license revenue. Expects additional wins in the company's focus verticals, traction with systems integrators and future strategic announcements.
Micromuse (MUSE) 82 3/4 +13/16: CSFB reiterated STRONG BUY rating and price target of $95 following yesterday's meeting with management. Despite being only one month into the quarter believes that capital Q201 is on track to exceed firm's revenue and EPS estimates of $54.3mm and $0.11; thinks MUSE represents one of the strongest franchises in the software industry and consequently warrants premium valuation.
Microsoft (MSFT) 60 13/16 -1 9/16: CSFB initiated coverage with a BUY and price target of $74. Sees MSFT poised to benefit from compelling pipeline of new products and steadily improving market fundamentals over the next 12-18 months. Estimates for FY01 are $25.1 billion and $1.80, and for FY02 estimate $27.8 billion and $1.92. Thinks the company can deliver 15% revenue and earnings growth over the next 3-5 years.
Telecom Equip
Industry Members
Adv. Fibre Comm (AFCI) 24 5/16 -5/8: Frost Securities upgraded to STRONG BUY from Buy and maintained price target at 35. Firm downgraded AFCI on Jan 03 amid concerns about telecom spending and potential for negative guidance. Now feels that economic uncertainties are priced into the stock price; considers AFCI and its products fundamentally sound and in a favorable position within the DSL market.
Comverse Tech (CMVT) 106 15/16 -6 3/16: Banc of America Sec initiated coverage with a BUY rating and price target of $135. Says Comverse represents a great play on the acceleration in enhanced telecom services. New products set stage for accelerated growth, most notably SMS, prepaid and speech recognition apps, as Comverse up-sells applications into a huge installed ESP base.
Copper Mountain (CMTN) 5 15/16 -1 7/8: Robertson Stephens lowered its estimates; says although quarter came in-line with pre-announcement, cited limited visibility; 2001E EPS ($0.98), down from ($0.16) and sets 2002E EPS of ($0.88)... W.R. Hambrecht adjusted its 2001 estimate to a loss of $0.95 from previously expected profit of $0.19.... After the close Thursday, CMTN reported in line Q4 net, but warned of a substantial sequential decline in revenue in Q1.
CoSine Comms (COSN) 14 1/2 -1 3/8: Lehman Brothers initiated coverage with a MKT PERFORM. Long-term expects company to see strong revenue growth as the market for IP services continues to develop; however remains cautious as market is still in infancy and awaits improving visibility. As COSN expands customer base, expects revs in 2001 of $103 mln.
QUALCOMM (QCOM) 86 13/16 +1 9/16: Plenty of speculation surrounding QCOM Friday with talk on trading floors suggesting that Intel will purchase company's chipset business... also a rumor that Nokia is having problems with a TXN chip and may shift some business to QCOM... Sources at Bear Stearns said that Nokia may be considering outsourcing its handset manufacturing to Telson, a manufacturer of phone for the S. Korean market. Telson uses QCOM chipsets for production of CDMA handsets. While not confirmed, could imply that NOK will use QCOM chipsets for the US CDMA market.... Earlier in the day, NOK did announce plans to shift some of its mobile phone mfg. from two Texas plants to facilities in Korea and Mexico.
Scientific-Atlanta (SFA) 55.00 -1.84: Banc of America Sec initiated coverage with a BUY rating and price target of $90. Says SFA executing on all fronts, taking share and driving 10% annual growth in the transmission business; expects penetration of international markets - now 21% of revenue - to drive long-term growth as overseas cable operators ramp their upgrades to digital networks.
Telecom Services
Industry Members
BellSouth (BLS) 41.50 -1.50: Company announced plans to exit payphone business; will begin transitioning out of the business immediately and will complete the transition by December 2002; says decision will allow BellSouth to focus on its core broadband, Internet and digital network offerings.
Verizon Comms (VZ) 52.00 -3.00: CSFB downgraded to BUY from STRONG BUY. Cited decelerating revenue growth and says that Q4 EPS of $0.77 (+2.7% y/y) was, at first glance, in line with firm's forecast, but 31% tax rate was far below firm's and prior qtrs' 36%, resulting in $0.06 of non-recurring EPS boost that offset an EBITDA result that was 7.5% below forecast on revenues 3% below firm's estimates. Lowered 5-yr EPS growth rate forecast to 12% from 14% to reflect concerns regarding auction-related dilution and revenue disappointments at Genuity.
XO Comms (XOXO) 23 23/64 -1 33/64: Came under pressure after filing registration statement to offer up to $2 bln in common and preferred stock. This follows a $450 mln private placement announced earlier in the month.
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