From Briefing.com: 11:40AM Cisco Systems Intraday (CSCO) 11.31 +0.36: -- Update -- -- Technical -- Advance accelerated this morning after an important technical barrier at 11.04/11.14 (Sep 01/Aug 02 lows), which stymied the recovery rally over the last week, was penetrated. Thus far, however, the push today has been capped by resistance at 11.6 (10 wk/50 day ema). Continued posture above recently penetrated barrier keeps the short term bias favorable. Next resistances are at 12.2 and 12.5.
10:38AM Cisco Systems outperforming (CSCO) 11.36 +0.41: -- Update -- CSCO trading up in a down market; hearing talk of a short squeeze, with some traders saying that company's setting of a Nov 6 earning release date is easing fears of a preannouncement. We would note that the Nov 6 date was set long ago, so the release date probably says nothing about the preannouncement risk. However, the fact that we're getting late in the month does reduce the risk a bit - the last CSCO warning in Apr 2001 came on the 16th day of the month.
10:05AM Nasdaq Composite Intraday : -- Technical -- Holds near support in the 1280 area in early action but limited buy side interest developing with the semi sector (-6.3%) the main drag. Need to see sustained action above initial resistances at 1288/1290 and 1295/1297 to improve the intraday bias. Failure exposes next support in the 1271/1267 area (short term retracement/50 day sma) with a secondary floor at 1262.
9:49AM Motherboard makers reporting shortage of Intersil P4 controller ICs - Digitimes (ISIL) 16.67 -1.43:
9:18AM Cisco Systems acquires Psionic Software (CSCO) 10.95: Acquisition was very small, just $12 mln in stock, and probably doesn't signal a renewed ramp in Cisco acquisitions; Psionic develops network security software.
7:44AM Cymer downgraded at Merrill Lynch (CYMI) 25.41: Merrill Lynch downgrades to SELL from Neutral based on the following reasons: 1) believes co's 2003 outlook should decline more rapidly than consensus, 2) switch to Argon Flouride lithography is meeting technical delays that could slow price and margin expansion on top of weakening industry unit demand, and 3) valuation.
7:09AM Taiwan Semi misses by $0.04 (TSM) 7.48: Reports Q3 net of $0.02 a share, $0.04 worse than the Multex consensus. Revs declined 10% sequentially to $1.14 bln (consensus $1.156 bln). TSM expects double-digit growth in 2003 revs from 2002 level (Multex consensus +23%). TSM forecasts 2003 capex of about $1.65 bln. (Previous forecast was for capex of approx. $2 bln, but a reduction to around $1.65 bln had been expected).
6:59AM Solectron and Lucent unwind optical systems deal (SLR) 1.86: Company and Lucent agree to unwind their outsourcing and asset-purchase transaction involving Lucent's North Andover, Mass., optical networking systems. Last month, Solectron said it was negotiating with Lucent to restructure or rescind the transaction.
10:55AM Texas Instruments (TXN) 14.45 (-2.67) (-15.60%) Why is the Texas Instruments earnings release a surprise to everyone? The basic theme is not news. At least, it is not news to us at Briefing.com. Texas Instrument's weak report fits right in with our vision of a maturing technology market, one which is past its great growth stage.
Take the earnings release apart. Here is what you get: A) The PC market is over - the Q&A part of the conference identified the PC market as the primary segment that disappointed. B) Business capital investment environment is flat to dismal. Texas Instruments, in a response to another question, stated they see no reason to expand capex spending (capital expenditures) beyond 2002 levels. Even more disconcerting, they haven't put together next year's plan yet. If Texas Instrument isn't investing in capital spending, who is? C) The wireless industry shows some signs of growth, but still modest (high single-digit sequential growth.) At least there is some ray of hope for growth, but it is still pretty modest.
What this all boils down to is "more of the same" in the technology industry. Texas Instruments is probably the best leading indicator, simply by virtue of size and diversity of markets they sell into, of the overall technology sector. Ever since Q2 of 2001, the entire technology sector has seen declining growth. Sequential revenue declines from Q1 of 2001 to Q2 of 2001 were across the board in all technology stocks. At the time it was quite startling. (See the Stock Brief of 26-Jun-01 Where Have All The Growth Markets Gone? for our reflection on this state written at the time.)
The flattening of the PC market is also not a surprise. We wrote off the PC market for good, as a growth investment, more than six months ago. (See the Stock Brief of 18-Mar-02 The End of WinTel As Investments.
This makes Texas Instruments, and basically all tech stocks except those with an exploitable niche, growth stocks without growth. As a growth investor, what's the point? It is critical to separate an investment in a maturing market from an investment in a growth market - because the appropriate valuation levels are completely different. Texas Instruments is still a great profitable well-run company - and likely to be around 30 years from now providing components for whatever we are building at that time. But for now, and the foreseeable future, it is not a growth investment stock. This is an extremely hard pill for a lot of people to swallow, but this adjustment in perception is the driver behind the two-year-plus decline in the stock.
The revision of Q4 earnings estimates downward from $0.11 a share to $0.02 a share is of concern to us, as well as everyone else, and the negative effects are being imposed on the rest of the market. But the proper big term perspective is not a short-term short-fall in earnings. What is going on here is a major shift of technology from a growth industry to a mature industry.
What is the proper valuation level for a tech stock in a mature market? Since such a thing hasn't existed before, really, it is hard to say, but it is probably a lot lower than the 3.5 times sales that Texas Instruments gets today. This means lower stock prices going forward, even if things improve a little.
So what conclusions can you draw from Texas Instruments release today? There is no rebound coming anytime soon for the overall technology sector. There may never be a rebound to previous levels of growth. The better perspective is to take Texas Instrument's earnings release as yet another sign that the market has matured, and realize that the shifting of valuations on tech stock is not over yet.
One amusing part of the Texas Instruments earnings forecast however, was the qualification to the revision of Q4 earnings to $0.02 per share with the caveat: "plus or minus a few cents." You have to keep your sense of humor these days. - Robert V. Green
finance.yahoo.com^SOXX+ALTR+AMAT+AMD+BRCM+CSCO+CYMI+INTC+ISIL+KLAC+LLTC+LSCC+LSI+MOT+MU+MXIM+NSM+NVLS+SLR+TER+TSM+TXN+XLNX+^VIX+^IXIC+^SPX&d=t
RtS |
