Comm IC chip companies could be in for more selling in the days and weeks to come... Among the more vulnerable are Broadcom (BRCM), Applied Micro (AMCC), PMC-Sierra (PMCS), TranSwitch (TXCC) and Vitesse (VTSS).
Updated: 19-Jun-01
General Commentary
The big story Monday was the capitulation in the telecom sector... In fact, weakness in the telecom sector is the story of the first half of the year, and has been covered extensively by our own Greg Jones... In a nutshell, emerging carriers struggling to survive as high costs, lack of credit availability and declining demand leave many companies on the verge of extinction... Larger, more established carriers also struggling with the difficult market conditions, though few are at risk of going out of business... The result has been a sharp contraction in capital spending, which in turn has slammed the telecom equipment providers... Among the stocks setting new lows were Metromedia Fiber (MFNX), Global Crossing (GX), Level 3 (LVLT), XO Communications (XOXO), Williams Comm (WCG), Nortel (NT), JDS Uniphase (JDSU), Tellabs (TLAB), Avici (AVCI) and Corvis (CORV)... No improvement in sight for this group either, as company after company has lowered expectations and complained about lack of visibility... In light of group's ongoing problems, Comm IC chip companies could be in for more selling in the days and weeks to come... Among the more vulnerable are Broadcom (BRCM), Applied Micro (AMCC), PMC-Sierra (PMCS), TranSwitch (TXCC) and Vitesse (VTSS).
While the telecom sector's troubles are cause for concern, the orderly nature in which the market has digested the decline is impressive... Unlike late last year and earlier this year, no sign of panic - not yet anyway... Nonetheless, the indices have pulled back considerably in recent weeks, with Nasdaq running its losing streak to seven - the longest since late '98... Sector is oversold, but considering the lack of good news on the immediate horizon it's likely to remain so for at least another couple of weeks.
Tough to get excited about a sector in transition during the midst of warnings season... Hence, the lack of buying interest... However, lack of selling pressure is also noteworthy, as it suggests that once we get the confessions out of the way, sentiment will improve based on the assumption that the sector has finally hit rock bottom.
After the close, Oracle (ORCL) beat the street by one cent in reporting Q4 earnings of $0.15... Sales slid 3.3%... On call, company noted that "it feels like it hit bottom in fiscal Q4." Expects to meet Q1 and FY02 consensus estimates... Stock up 0.84 in early after hours trading... Fact that bellwether didn't disappoint could give sector a much needed psychological boost.
Telecom group could also get a modest boost from Metromedia (MFNX) as company's warning wasn't as bad as expected - Traders seemed especially relieved by fact that company didn't lower EBITDA projections... Could trigger some very light bargain hunting.
Robert Walberg |
