From Briefing.com: 7:07PM Thursday After Hours price changes vs 4pm ET levels: There is a mixed tone in the after hours trade with the S&P futures, at 879, trading 4 points below fair value and the Nasdaq 100 futures, at 968, trading one point above fair value. The difference in those respective trades can be attributed to the disparate earnings updates from two, well-known, Nasdaq-listed issues, and one, well-known member of the NYSE.
Close Dow -176.93 at 8317.34, S&P -13.64 at 882.50, Nasdaq -21.52 at 1298.71: For a good while, the major indices were holding near the unchanged mark, underpinned by some better than expected initial claims data and a relatively reassuring earnings report from AOL Time Warner (AOL 14.55 +1.02)... At 13:40 ET, however, the indices took a noticeable dip from which they never recovered... Several explanations were offered for the sudden reversal of fortune, but in the end, the obvious explanation was that the market was due for some selling interest...
After all, since hitting multi-year lows on Oct. 10, the Dow, Nasdaq, and S&P had rallied 18%, 19%, and 17%, respectively... Those gains came largely without interruption, and often, in the face of negative news... Accordingly, there was reason to be concerned the market had moved too far, too fast... Even so, the market's resilience of late, combined with the weak Treasury market, reports of hedge funds taking a more neutral stance, and fund managers doing some window dressing ahead of their fiscal year-end (Oct. 30), has left bears reluctant to fight the tape...
They overcame their reluctance this afternoon, though, when a rash of reports--most of which carried negative connotations-- enabled them to force the action... One such item was a CNN report that Iraq plans to expel all international journalists next week... Such a decision was deemed to be a potential precursor of war... Though the market has dealt with that possibility for some time now, it certainly offered a convenient excuse to take some money off the table... Another item receiving attention was S&P's announcement that it may cut AOL's long-term ratings by one notch... Separately, Briefing.com heard rumors of a large put buyer of the Nasdaq 100 tracking stock (QQQ 23.98 -0.62)...
Though it is virtually impossible to pinpoint the exact reason for the broad-based sell-off, we would add that it is not unusual to see such worrisome factors cited for a sharp pullback after a substantive rally effort... Whatever the case may have been, buyers essentially disappeared in the late-afternoon trade... It was just the opposite in the Treasury market, though, as buyers returned in striking fashion as the equity market faltered... The yield on the 10-yr note, which hit 4.26% earlier in the day, is now at 4.13%... Nasdaq 100 -2.5%, Russell 2000 -0.8%, SOX -2.6%, S&P Midcap 400 -1.5%, NYSE Adv/Dec 1430/1783, Nasdaq Adv/Dec 1504/1703
5:09PM Kopin beats by 2 cents, guides Q4 below consensus (KOPN) 4.41 -0.13: Reports Q3 (Sep) earnings of $0.01 per share, $0.02 better than the Multex consensus of ($0.01); revenues rose 78.0% year/year to $21.9 mln vs the $22.0 mln consensus. Expects Q4 revs to decline 25-30% sequantially due to the lack of an agreement with a large customer on purchasing terms as well as anticipated weakness in the holiday selling season (which would be well below consensus of $23.3 mln).
4:55PM OSI Systems tops estimates (OSIS) 16.90 +0.40: Reports Q1 (Sep) earnings of $0.24 per share, $0.02 better than the Multex consensus of $0.22; revenues rose 40.0% year/year to $37.1 mln vs the $35.5 mln consensus; EPS guidance for fiscal 2003 is for $0.92 -- Multex consensus estimate is for earnings of $0.92 per share.
4:45PM TriQuint Semi reports in-line Q3, issues guidance (TQNT) 4.91 unch: Reports Q3 (Sep) loss of $0.01 per share, in line with the Multex consensus of ($0.01); revenues rose 16.0% year/year to $71.0 mln vs the $71.0 mln consensus. Expects Q4 EPS of breakeven on revs of $71-$75 mln, vs consensus of breakeven and $74.3 mln.
4:29PM Asyst beats by a nickel (ASYT) 4.69 +0.19: Reports Q2 (Sep) earnings of $0.02 per share, $0.05 better than the Multex consensus of ($0.03); revenues rose 49.1% year/year to $72.3 mln vs the $69.6 mln consensus.
4:27PM Varian Semi beats by a penny, Q1 guidance below consensus (VSEA) 20.54 -0.79: Reports Q4 (Sep) earnings of $0.04 per share, $0.01 better than the Multex consensus of $0.03; revenues rose 37.1% year/year to $96.0 mln vs the $95.8 mln consensus. Expects Q1 EPS of about breakeven and revs to be $72-$92 mln, vs consensus of $0.02 and $81.9 mln.
4:16PM Zoran tops estimates (ZRAN) 12.80 -0.37: Reports Q3 (Sep) earnings of $0.25 per share, $0.02 better than the Multex consensus of $0.23; revs were $44.1 mln, vs consensus of $42.6 mln; sees full year pro forma earnings per share ranging from $0.62 to $0.67 -- Multex consensus estimate is for earnings of $0.63 per share.
4:09PM Flextronics matches estimates (FLEX) 8.52 -0.47: Reports Q2 (Sep) earnings of $0.08 per share, in line with the Multex consensus of $0.08; revenues rose 2.9% year/year to $3.34 bln vs the $3.24 bln consensus.
4:09PM JDS Uniphase misses; guides lower (JDSU) 2.42 +0.02: Reports Q1 (Sep) loss of $0.07 per share, $0.01 worse than the Multex consensus of ($0.06); revenues fell 41.3% year/year to $193.0 mln vs the $190.1 mln consensus. Company once again guiding lower - sees Dec qtr revenues of $150-160 mln vs Multex consensus of $181 mln, and loss of $0.05-0.07 vs ($0.05) consensus.
4:07PM Emulex beats by 3 cents, issues guidance (ELX) 13.80 +0.64: Reports Q1 (Sep) earnings of $0.19 per share, $0.03 better than the Multex consensus of $0.16; revs were $70.4 mln, vs consensus of $70.7 mln. Expects Q2 EPS of $0.19 on revs of $72-$75 mln, vs consensus of $0.17 and $75.4 mln.
3:34PM Microchip (MCHP) 22.70 -2.95: Analysts are encouraged by MCHP's exectution during the downturn (co matched consensus Q2 estimates last night and guided Q3 revenue in-line), but believe stock is due for a cool-down; shares subsequently trade off 11.5%. CSFB points out MCHP's analog revenues posted another qtr of double digit growth, but notes stock is pushing against their $27 price target and maintains their Neutral rating. Banc of America believes MCHP continues to out-execute its semi peers, but based on mgmt's incrementally more cautious stance, lowers their price target to $28 from $32. Morgan Stanley downgrades to EQUAL-WEIGHT from Overweight (see In-Play for note).
3:34PM Nasdaq Composite Intraday : -- Technical -- Index moderately lower this afternoon after failing to take out first level resistance highlighted this morning (see 10:01 comment). As suggested, the market was overextended in the wake of the recent surge with some corrective action possible. Thus far the slide has been contained but a sustained breach of the 1300 area raises the probability that the 10 day surge has run its course for now. Next supports are at 1287 and the 1280 area.
3:08PM Intersil (ISIL) 17.77 +0.49: Shares of Intersil are bidding up solidly following the company's release of its third quarter results. Last night, the company reported that third quarter third quarter revenues rose 42.7% to $191.3 million, versus the $134.1 million reported in the year ago period. At the same time, net income excluding items totaled $26.6 million or $0.19 per diluted share, exceeding the analyst consensus estimate by a penny.
Looking forward, management guided in line to modestly lower versus current expectations. The company now sees fourth quarter earnings of $0.20 per share in addition to sequential revenue growth in the range of 1-3%. By way of comparison, the current consensus estimates call for earnings of $0.21 per share on revenues of $198.9 million.
While there is undoubtedly risk in the semiconductor space, Intersil is a company with improving operational metrics as well as a reasonable valuation. The company makes high-speed wireless local area network (WLAN) chipsets and other integrated circuits, primarily for the communications and computing markets. It currently has a solid leadership position in the WLAN market with more than 60% market share for the current generation of products called 802.11b chipsets.
It's also notable that despite the adverse market conditions, management has increased aggregate profitability with gross margins of 54.0% -- this represents an increase of 20 basis points from the prior quarter and an increase of 300 basis points over the year ago period. Keep in mind these operational improvements come despite the company's recent acquisition of Elantec, which has enabled Intersil to enter new markets such as flat panel displays and optical storage.
From a fundamental perspective, ISIL trades at 26.0x current year estimates and carries a forward multiple of 18.4x. With projected earnings growth in the ballpark of 41% for fiscal year 2003, we view the risk/reward proposition as favorable near current levels. -- Mike Ashbaugh, Briefing.com
2:32PM ATI Tech (ATYT) 5.86 +0.26: In a move to penetrate the high-volume mainstream mkt, ATYT today launched 3 new products based off of its Radeon 9700 Pro architecture: the Radeon 9700 product will be introduced at a $299 price point and is fundamentally a slower clock speed version of the 9700 Pro, and the Radeon 9500 Pro and 9500 products will be introduced at $199 and $179 price points respectively .. CSFB believes ATYT's new products will outperform NVDA's products, particularly with the Radeon 9700 (given higher memory) bandwidth and reiterates their thesis that ATYT is clearly gaining momentum, beyond the high-end and in the high-volume mainstream mkt.
2:52PM Market slide blamed on several factors : Equities have continued to decline since our 14:09 comment, with the Dow dropping another 70 pts. Along with the renewed war fears cited in that update, we are also hearing rumors of a large put buyer in the Nasdaq-QQQs and some rotation back into bonds. Not helping matters are concerns that AOL's debt will be downgraded (see 14:02), though this has not weighed on AOL shares (+7.2%) very much.
2:09PM Market slide attributed to renewed war fears : We are hearing that traders are attributing the mkt's slide in the last half hour to renewed war fears following Iraq's announcement that it will kick out foreign journalists.
12:57PM Cisco Systems seeing improving order trends -- Lehman (CSCO) 11.81 +0.55: Lehman channel checks have revealed somewhat improved order trends for Cisco during the month of October. Firm had suggested in recent notes that demand trends in Sept had weakened. Lehman now believes better trends in Oct may enable sales to come in flattish qtr/qtr, which would be in-line with official guidance and above Lehman's previous forecast of a 5% qtr/qtr decline. Firm's checks suggest CSCO is now building backlog for JanQ as opposed of shipping for OctQ revenue.
12:56PM Lucent (LU) 0.94 +0.18: Stock trading up 23% after posting slightly stronger that expected Q4 earnings and guiding Q1 revs in-line. This morning, RBC Capital Mkts upgraded to SECTOR PERFORM from Underperform with price target of $1, due to the recent decline in stock price and moderate improvement in the liquidity situation. Firm says concerns about liquidity have abated somewhat following additional detail provided by company on cash restructuring and other cash uses. While firm is skeptical of LU's revenue guidance for 2Q03, believes recent wireless contract wins have provided management with somewhat improved revenue visibility.
11:43AM The Productivity Boom : Fed Chairman Greenspan went into greater detail about encouraging productivity trends yesterday, a theme which he has mentioned briefly in many past speeches. Though his remarks do not say much about near-term Fed policy decisions, the economic issue here is an important piece of the long-term market puzzle.
Greenspan's speech focused on the surprising acceleration in productivity growth over the past year. Typically, productivity growth decelerates during a recession as companies cannot cut costs as fast as revenue growth falls. But in this cycle, we have seen productivity growth accelerate to 4.8% in the year through Q2 even as economic growth has been anemic.
The Chairman explored two issues - whether the acceleration was in fact real (or just a statistical mistake), and if it was real, why did it occur. He concludes that it most likely was real, and that it was due to a number of factors, some of which were short-term (and thus don't have implications for future economic growth) and some of which were long-term and indicate that productivity growth could continue in excess of 2% for several years, well above the previously assumed underlying pace of roughly 1%.
Why should we care? Because there is a link between productivity and corporate profits. The sum of productivity growth and growth in hours worked is GDP growth. And GDP is essentially corporate profits plus personal income (see our Apr 3 Stock Brief for a more in-depth discussion of this link).
If productivity growth can sustain a higher growth rate, one of three outcomes is certain: 1) corporate profit growth will be stronger, 2) personal income growth will be stronger, or 3) profit and income growth will both benefit. This final option is the most likely as corporations and employees typically share the benefits of productivity gains over time.
This view does not necessarily have much to say about near-term market action, but it does suggest that there's cause for optimism longer term. Even though corporations are struggling now with weak pricing power and sluggish demand, strong underlying productivity growth is setting the stage for improved profit performance down the road. - Greg Jones, Briefing.com
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