[Briefing.com] Tech Stock Analysis Updated: 26-Feb-01 General Commentary
At least techs ended the week on a slightly upbeat note, with bargain hunting in the storage, optical networking and software stocks lifting the Nasdaq 17.55 points higher in Friday's action... The modest closing gain doesn't tell the whole story, however... Index closed Friday's trading more than 100 points off the intra-day low, with most of the buying coming late in the session.
Will the index be able to build on Friday's late recovery rally this week? To answer that question it's important to first identify the forces that drove the rebound... They were in no particular order: short-covering ahead of the weekend; increased speculation of a Fed rate cut next week (which prompted much of the short-covering); deeply oversold short-term technicals; and light bargain hunting.
In Briefing.com's opinion the key is the Fed (no surprise). If techs are to sustain a rebound from currently depressed levels, the Fed needs to cut rates again next week, and the more aggressive the move the better. At this point, bold action won't raise the fear factor, as investors are about as spooked regarding the state of the economy as they're likely to get. So we suggest that Greenspan keep the pedal to the metal and cut the funds and discount rates by another 50 basis points. Even if the Fed adopts a more conservative posture, and trims the funds rate by a more modest 25 basis points, it should help to stop the bleeding as the action would alleviate wideheld concerns that the Fed remains behind the curve on rates.
Without help from the Fed, bargain hunting will quickly dry up as traders aren't confident that a bottom is in place... Shorts will regain the upper hand, and the momentum names will take another (though smaller) beating... Under such a scenario the oversold technical tone may limit the scope of additional declines but it (alone) won't prevent them.
To paraphrase Simon & Garfunkel, 'where have you gone Mr. Greenspan, the market turns its lonely eyes to you.'
Not much in the way of earnings this week, but traders will be focusing on Altera's (ALTR) mid-quarter comments (2/27), Qualcomm's (QCOM) analyst meeting (2/28) and Gateway's (GTW) analyst meeting (2/28) for further guidance on the future outlook for earnings... See Briefing.com's Events Calendar for details.
Robert Walberg
Industry Briefs
Computer Systems & Peripherals | Networking | Internet | Semiconductor | Semi Equipment | Software | Telecom Equip | Telecom Services
Computer Systems & Peripherals
Industry Members
Network Appliance (NTAP) 33 15/16 +1/8: Entered $1 bln technology and business agreement with Intel Corp (INTC); under the 7-yr deal, Intel will purchase NetApp systems for use in data center operations worldwide and Network Appliance will purchase Intel microprocessors, systems, and other components for incorporation in NetApp filers for network storage and NetCachecontent delivery systems.
Sun Microsystems (SUNW) 20 13/16 unch: AG Edwards downgraded to MAINTAIN POSITION from ACCUMULATE based on dramatically lower guidance and low visibility. Lehman Brothers reiterated STRONG BUY saying that despite sharp downward revision with management guiding down Q3 revs to 10-13% vs Lehman's 25% growth estimate, firm still views SUNW as a leader in Internet Infrastructure & enterprise computing, thinks investors should look at long term prospects which are very bright.
Networking
Industry Members
Comp. Network (CMNT) 12 1/16 -3/16: Bear Stearns downgraded to ATTRACTIVE from BUY; cited uncertainty and decline in visibility in storage area that could lead to further lowering of firm's estimates particularly in light of company's back-end loaded nature of business; lack of compelling valuation case as the valuation gap with other leading technology companies has now narrowed; longer-term concerns about the potential for the larger networking companies to encroach on this segment. Stock set new 52-wk low today at 11 3/16.
McDATA (MCDT) 23 5/8 +1: AG Edwards initiated coverage with an ACCUMULATE; said MCDT should continue to benefit from a tremendous tailwind, the strong growth of the SAN switch market over next few years, therefore, market growth as well as a desire by OEMs to have dual-sourcing capabilities should argue in MCDT's favor; believes that, McDATA offers investors a way to play a strongly growing pie (storage) while simultaneously taking share within the pie (SAN networking). All in all, believes that McDATA is well positioned in the SAN switching arena.
Internet
Industry Members
Cyberian Outpost (COOL) 1 -1/2: Company warned for Q4; sees loss of $0.31-0.34; current EPS estimate is ($0.16).
DoubleClick (DCLK) 13 1/4 -1/4: Announced it has entered into a definitive agreement to acquire FloNetwork Inc., a Toronto based email marketing technology provider, for an undisclosed amount of cash and stock.
InfoSpace.com (INSP) 4 5/32 +25/32: Stock traded up 23% today after company disclosed that its Chairman/CEO Naveen Jain increased his ownership in the company by purchasing 500,000 shares of common stock on the open market on Feb. 15. The purchase increases his total holdings in the company to more than 62 mln shares.
priceline.com (PCLN) 2 9/16 +17/32: Legg Mason initiated coverage with a STRONG BUY rating and price target of $6; believes the worst is behind PCLN and that company should achieve its targeted profitability date of June 2001; firm said management is focused, employee morale is improving, and business growth is returning; believes improvements allow PCLN to achieve profitability and prosper within its travel business.
Proxicom (PXCM) 5 23/32 -9/32: Deutsche Bc Alex. Br downgraded e-business consulter to BUY from STRONG BUY.
VerticalNet (VERT) 3 15/32 -1/16: CSFB downgraded to BUY from STRONG BUY; firm said it appears that VERT would have missed Q4 estimates on an apples to apples basis due to poor performance in their asset remarketing business, but firm also believes that revenue from sponsorships was flat and may be showing continued weakness into Q1/01.
Semiconductor
Industry Members
Marvell Tech (MRVL) 25 +3 11/16: Designer of broadband communications chips spiked 17% after it reported Q4 net of $0.05, which was in-line with consensus; sales for the period increased 77% to $143.9 mln.
Network Appliance (NTAP) 33 15/16 +1/8: Entered $1 bln technology and business agreement with Intel Corp (INTC). Under the 7-yr deal, Intel will purchase NetApp systems for use in data center operations worldwide and Network Appliance will purchase Intel microprocessors, systems, and other components for incorporation in NetApp filers for network storage and NetCachecontent delivery systems.
TranSwitch (TXCC) 25 7/8 -1 7/16: Company named Peter Tallian as its new CEO, replacing Michael F. Stauff, who recently expressed his interest to depart to pursue his personal interests. Banc of America Sec. downgraded to BUY from STRONG BUY following CFO departure.
Semi Equipment
Industry Members
There was no news of note in the Semi Equipment industry.
Software
Industry Members
BEA Systems (BEAS) 44 1/16 +2 1/8: Adams, Harkness & Hill raised FY02 earnings forecast to $0.41 from $0.37 in response to company's better-than-expected Q4 results. Expects better margin mix exhibited in Q4 to continue throughout FY02. UBS Warburg upgraded to STRONG BUY from BUY rating and price target of $75; raised FY02 earnings forecast to $0.42 from $0.36 to reflect guidance to a stronger revenue mix; firm cited valuation and believes BEAS is a core technology holding; views current weakness as a significant buying opportunity.
Bisys Group (BSYS) 52 1/2 +1 1/8: Robinson Humphrey initiated coverage with a BUY rating and price target of $62; BSYS differs from its peers by offering both best-of-breed information technology solutions and industry-specific human capital services; business mix is shifting toward higher-profitability revenue streams; with products and services designed to enhance the operations of each of the distinct segments of financial services, firm believes BISYS stands to benefit from the continued convergence therein.
i2 Technologies (ITWO) 29 9/16 -2 5/8: Friedman Billings initiated coverage with a BUY rating and price target of $50; said company is well-positioned to take advantage of tremendous market opportunity; cited ITWO's comprehensive product offering, powerful go-to-market strategy, and attractive financial model.
Infosys Tech (INFY) 100 +9 3/8: Deutsche Bc Alex. Br upgraded to BUY from MKT PERFORM; believes overall fundamentals remain strong and business is continuing to track on plan; says stock is now at attractive valuation for IT services investors to play macro theme shift to offshore demand.
Manugistics (MANU) 33 7/16 -2 9/16: Southwest Sec upgraded to BUY from ACCUMULATE rating and price target of $50 due to solid execution, strong fundamentals and improving market presence in the SCM sector. On the other hand, CE Unterberg Towbin downgraded to NEUTRAL from BUY based on valuation; since MANU's valuation is presently double the stock's historical average valuation of 4.5 times, firm does not consider the stock attractive at current levels.
Microsoft (MSFT) 56 3/4 +1 9/16: ProComp call (Project to Promote Competition and Innovation in the Digital Age which is a strong group and very anti-MSFT) took place today and as expected, it was one-sided with guest speakers including Ken Starr (yes, that Ken Starr), speaking to the threat of MSFT being allowed to continue to operate in its current form. There was nothing of particular note that was said to impact MSFT's stock... By and large, it sounded like a call only a lawyer could appreciate... If you'd like to listen, replay number is 1-800-677-6200 (Pin #2331). Also, DB Alex Brown hosted an 11 ET call on MSFT antitrust issues; firm feels there are some positive developments in the appeals process but does not expect a decision until late April/early May. If MSFT loses this appeal, DBAB expects an appeal to Supreme Court which firm feels they would win; if MSFT wins appeal, firm expects a settlement.
Onyx Software (ONXS) 10 7/16 -1 1/4: Thomas Weisel initiated coverage with a BUY; said ONXS is leading supplier of customer relationship mgmt apps; cited global market for CRM apps is expected to grow from $6.8b in '00 to $20b in '04; expects ONXS to continue to take market share.
PUMATECH (PUMA) 5 3/4 +1/4: Although company announced it has received an order for $1 million from MAN B&W Diesel AG for Pro/ENGINEER software and services, stock was downgraded twice today. CIBC Wrld Mkts downgraded to BUY from STRONG BUY; lowered price target to $15 from $35 due to disappointing revenue and margin growth. Management lowered guidance due to general climate in marketplace and loss of a few licensing customers. Frost Securities downgraded to BUY from STRONG BUY; lowered price target to $10 from $48; although firm is solid believer in Puma's long term potential and while company did meet this quarter's revenue and earnings expectations, firm believes there is higher revenue risk exposure in the short term due to the funding of some customers, and because of the cautionary stance that firm has observed in the enterprise IT departments.
Sanchez Computer (SCAI) 9 15/16 -5/8: Robinson Humphrey initiated coverage with a NEUTRAL; said SCAI is among a new breed of bank tech vendors attempting to span the chasm between traditional core processing and web-enabled banking; also said that recent shift toward profitability has created significant positive momentum in SCAI shares.
Telecom Equip
Industry Members
ACT Mfg (ACTM) 20 -1: SG Cowen reiterated STRONG BUY; ACT Manufacturing positive on Siemens/Efficient (EFNT) merger; ACTM management says they like the opportunity to leverage its global capabilities and its extend its relationship with Siemens.
Autodesk (ADSK) 36 1/8 +3: Merrill Lynch upgraded to NT ACCUM from NT NEUTRAL; firm says revenue outlook is reasonably more stable; key vertical market groups (AEC, GIS, mechanical/manufacturing) are showing momentum; over time, ADSK should be able to leverage its diversified products, market coverage, and new "process" related services, given its multiple franchises and distribution.
JDS Uniphase (JDSU) 32 3/8 +1 13/16: Merrill Lynch "pro-actively" reduced estimates to reflect revised outlook provided by JDSU's largest customer, Nortel; reduced FY01 est from $0.73 to $0.70 and FY02 forecast to $0.74 from $0.88; believes that calendar 2001 will be a challenging yr for much of the communications equipment space as carriers minimize spending due to economic and capital market concerns.
Lucent Tech (LU) 12.40 -0.13: Telecom equipment maker secured $4.5 bln of new 364-day credit facilities. A portion of the new credit replaces a $2 bln credit facility that expired Feb 22; the remaining $2.5 bln will be assumed by Agere Systems at its IPO.
Motorola (MOT) 16.25 -1.04: Company warned for Q1; does not expect to meet earnings and sales guidance of $0.12 and $8.8 bln, respectively. Company cited the sharp economic slowdown occurring in the United States and inventory corrections taking place broadly in technology markets. Also, company said that if the pattern continues, they expect to incur an operating loss in the quarter. On the conference call, company said that it's primarily the PCS and Semiconductor units that are the weakest. Mgmt stressed that the weakness was not due to market share loss, but rather weaker demand and excess inventory in the channels. On an unrelated story, Hutchison Whampoa Ltd said it will pay about US$120 mln for Motorola's 25.1% stake in its Hong Kong mobile phone business, Hutchison Telephone Co Ltd according to Reuters. Hutchison's stake will rise to 81%. See Story Stock for additional detail.
Powerwave Tech (PWAV) 17 7/16 -2 11/16: Deutsche Banc Alex. Brown downgraded to BUY from STRONG BUY; near-term risk factors have increased and potentially exceed already cautious forecast, if Nortel's (NT) pessimistic statements prove accurate, then the ramp to 3G could be slower than previously foreseen. Stock set new 52-wk low of 17 1/4 today and has been halved over the past week and a half.
QUALCOMM (QCOM) 61 13/16 -5 1/8: Company CEO told Financial Times that the release of third-generation mobile technology promised by European telecom operators could be delayed by two years. While most European operators have suggested 3G will be ready from 2002 onwards, QCOM does not see 3G services becoming commercially viable until late 2004 or early 2005. Lehman defended QCOM based on valuation; considers QCOM a buy at current levels; positive on long term position and feels visibility remains strong. In mid-day call, Mrgn Stnly Dn Wttr upgraded to STRONG BUY from OUTPERFORM rating and price target of $100. Company this afternoon confirmed that demand for CDMA integrated circuits in Q2 is consistent with previous forecasts of 16 mln units. Mgmt said cdma2000 1x, is not expected to be delayed, is already commercially available in South Korea and will be deployed in Japan, North America and Latin America this year. Stock rebounded 20% off its intraday low. See Story Stock for additional details.
Redback Ntwrks (RBAK) 34 3/4 +4 13/16: Stock surged 16% after it was highlighted in Business Week as a potential takeover target. One money manager, who has been accumulating shares, thinks that Nokia (NOK) would be most likely candidate to make a run at RBAK, with Cisco Systems and Juniper Networks also said to be eyeing the company.
Wireless Facilities (WFII) 13 3/4 -3 3/8: Hit a new 52-wk low after company announced that it has received notice of contract suspension and termination from Metricom (MCOM) with regard to remaining RF engineering and deployment services for Metricom's data network build-out, which would have been provided during the first half of FY01.
Telecom Services
Industry Members
Crown Castle (TWRS) 24 5/16 -3/8: Hutchison 3G UK Limited will lease space on a minimum of 4,000 Crown Castle sites throughout the U.K. The lease term at each site will be 25 years, with provisions for annual increases in rental rates.
Deutsche Telekom (DT) 23.35 +0.55: Germany's dominant phone company, said it would sell stakes in six remaining cable television networks to Liberty Media.(LMGA) giving LMGA a 55% stake in one of Europe's biggest cable television markets. No price was disclosed but the daily Handelsblatt suggested a $4.1 bln - $4.6 bln range.
Ford Motor (F) 28.35 +0.84: UK mobile phone giant Vodafone Group Plc (VOD : 27.45) and Ford of Europe said they would team up to offer European drivers a telematics service, which includes traffic information and emergency assistance.
SeaChange (SEAC) 15 3/16 -7/16: SG Cowen initiated coverage with a BUY rating and price target of $26; said cable services becoming increasingly server based to capture efficiencies, Video-on-demand (VOD) extremely compelling, early stage opportunity; cited accelerating, diversified rev and profit base in F2002 and beyond; highly competitive and early stage marketplace, but VOD not sole sourced and SEAC well positioned.
Triton PCS (TPCS) 32 1/4 -1 3/4: Priced 6 mln share secondary offering at $32 per share, almost 6% below yesterday's closing price.
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