From Briefing.com: Updated: 20-Feb-03 - General Commentary - If only Nortel (NT) had cited Saddam Hussein as the reason it now sees wireless equipment spending declining by 10% in 2003 (instead of by single digits), then maybe we could expect improvement once war began. If only Motorola (MOT) had blamed Saddam Hussein for the decline in handset prices it now expects in 2003, maybe the sector would rebound once war began. If only Saddam were to blame for falling DRAM prices, maybe after the war was won Micron (MU) could quickly rehire the 1800 employees it just cut. If only...
While the threat of war with Iraq can be blamed for creating a bearish tone on the street, and for keeping buyers on the sidelines, it's foolish to lay all the blame for the sector's troubles on the crisis in Iraq. That's why investors shouldn't overreact to the inevitable rally once war commences and the "uncertainties" lift.
Unfortunate reality is that end-user demand remains weak. And with price competition throughout the sector keeping pressure on revenues and earnings, and with companies more concerned with trimming costs than with growing R&D, US can score a decisive victory in the Gulf and it won't alter the demand picture much at all.
In the end, the sector will rally or fall based on the simple principle of supply and demand, and not on the outcome of the Gulf crisis. Though demand is falling at a slower rate, it's still contracting. And in a sector that enjoyed some pretty spectacular gains in anticipation of the long-awaited turnaround, that's not good news.
So while the Gulf crisis will continue to dominate the headlines - as well as market direction - over the short-term, long-term investors considering jumping into tech will want to do so only when there are more consistent signs of a demand recovery.
Robert Walberg
6:14PM Wednesday After Hours price changes vs 4pm ET levels: The regular session's attempt to pare some its losses in the last hour of trading has carried over into the after hours session, where the S&P futures, at 846, are 1 point above fair value and the Nasdaq 100 futures, at 1009, are 2 points above fair value. Despite a slew of generally uninspiring corporate outlooks tonight, the extended session continues to show a fair degree of resiliency and trade with a positive bias.
4:10PM : Stocks opened lower on profit-taking after the strong run of the previous two sessions...from there, the indices drifted lower on very light volume throughout the day until a late bounce pared the lossess...the Dow closed just above 8,000...news reports that the U.S. was tracking ships that might be carrying Iraqi weapons, and that Iranian troops had entered Iraq raised war jitters once again, and while that may not have led directly to losses, it kept many players on the sidelines...in fact, NYSE volume, at 1.08 billion, was the lighest day not associated with a holiday since August...
it was just flat out slow...the losses today were widespread across sectors...the SOX semiconductor index was even down 2.64 to 288.99, despite an upgrade for the sector and for Intel from influential brokerage Morgan Stanley...
3:15PM Integrated Circuit defended by Lehman (ICST) 21.61 -0.71: Dan Niles at Lehman is out defending ICST this afternoon; believes ICST is in good shape regarding their share of clock sockets for the upcoming launch of INTC's new version of its Springdale chipset, and does not expect the relative shares between ICST and competing supplier CY to change in the latter's favor; finally, Niles believes the orders have already been received for shipment in March, and thinks ICST is well on its way to their rev/EPS ests for the qtr.
12:26PM Volume Alert: Cabot Micro trades down 6% on relatively heavy volume (CCMP) 42.83 -2.81: Although most of the semiconductor group is under pressure today, CCMP's percentage decline is about twice as large as others in the group. Also, just three hours into the session, stock has almost reached its avg daily volume level.
CSFB upgrades Wireless Equipment sector : CSFB raises their rating on the Wireless Equipment sector to Mkt Weight from Underweight based on their belief that trading opportunities exist in the next 3-6 months; more positive near-term view is based on their view that sentiment has shifted to too negative, and valuations look attractive for several of the names; sees most upside in NOK and UTSI, and to a lesser extent QCOM.
10:11AM Anadigics (ANAD) 2.15 +0.20: Wachovia upgrades Underperform to MKT PERFORM. Based on its estimated net cash value per share at year-end 2003 of about $2 per share.
9:46AM Texas Instruments (TXN) 16.24: Morgan Stanley upgrades Equal-weight to OVERWEIGHT. Target $25. Most of the earnings risk appears to be discounted already and TXN should find solid support in the mid-teens.
9:46AM Xilinx (XLNX) 22.71 +0.62: Morgan Stanley upgrades Equal-weight to OVERWEIGHT. Target $30. Believes XLNX should be a leader in any meaningful advance within the overall semiconductor sector.
9:45AM Intel (INTC) 16.71: Morgan Stanley upgrades Equal-weight to OVERWEIGHT. Target $25. Believes combination of a new product cycle, lower unit costs, and pricing power should drive earnings power sharply higher in next 1-2 years.
Marvell (MRVL) 18.3 -0.76: USB Piper Jaffray believes that INTC will announce later today that it has begun internal sampling of a gigabit ethernet chip, which would be negative for MRVL, for whom INTC is a 21% customer. Pacific Crest, however, is positive on MRVL; says its checks at the ongoing Intel Developer Forum indicate that INTC is unlikely to introduce its own gigabit ethernet chip anytime soon; believes development problems will lead to a late Q4 launch at the earliest.
8:20AM Motorola sees handset prices falling (MOT) 8.26: Reuters reports that the head of MOT's handset division said that he sees another $4-5 of price erosion on average for handset prices, citing a new level of low-end phones; the comments were made at the 3GSM show in France.
7:54AM Semi Equip book-to-bill ratio falls to 0.92 : The semiconductor capital equipment book-to-bill ratio for January came in at 0.92. This represents a decline from December's b-to-b ratio of 0.94. Morgan Stanley's industry analyst's previous estimates were in the range of 0.93-0.98 for this indicator. The analyst believes this announcement to be a "non-event" despite missing his forecasts for January.
7:52AM Micron reduces workforce by 10% (MU) 7.17:
7:48AM Nokia cut to Mkt Perform from Outperform at Wachovia (NOK) 14.26: Based on firm's most recent Global Handset Sentiment Index, Wachovia is concerned that demand for replacement handsets could be weaker than expected over the next qtr. Leads firm to reduce its Q1 est to Eur 0.18 from Eur 0.20. Lowers 2003 view to Eur 0.88 from Eur 0.91. Firm does not expect shares to advance much until there is a rebound in replacement handset demand particularly in Europe.
7:47AM Agilent results may cause further volatility - Lehman (A) 12.70: Lehman thinks that A's Q1 results on Friday could cause further turbulence in the shares, as the co may not announce the kind of aggressive near-term cost reductions that would encourage investors to buy the shares on the basis of operating leverage; firm believes that there is not a high degree of certainty around the co's revised guidance, and that cash burn rate will be substantial.
7:47AM Anadigics upped to Mkt Perform from Underperform at Wachovia (ANAD) 1.95: Firm expects ANAD to trade in the $1.90-$2.10 range based on its est of $2.00 in net cash per share at yr-end 2003.
7:42AM Dell Computer initiated as In-Line at Goldman (DELL) 26.49: Goldman Sachs initiates coverage with an In-Line rating, saying in the near-term DELL's premium valuation "does not appear to leave enough on the table" given both geopolitical overhangs and a slower seasonal period for both PCs and the tech mkt in general.
7:21AM Semi stocks upgraded by Morgan Stanley: INTC, XLNX, TXN : Morgan Stanley raises its view on the Semiconductor group to Attractive from In-Line on view that the reward to risk parameters have become more attractive during the last few months. Firm expects the universe of semiconductor stocks to outperform the overall market during the next 12-18 months. Upgrades INTC, TXN, and XLNX to OVERWEIGHT from Equal-weight.
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