From Briefing.com: Updated: 14-Apr-03 - General Commentary - For the time being (and hopefully for good), the war on Iraq has moved to the backburners. Sector/market direction over the next few weeks will be dictated largely by corporate earnings. Q1 earnings season kicks into high gear over next several days, with IBM (4/14), NVLS (4/14), CHKP (4/15), INTC (4/15), MOT (4/15), MSFT (4/15), TXN (4/15), EMC (4/16), AAPL (4/16), BRCM (4/16), SUNW (4/16), NOK (4/17), SAP (4/17) and KLAC (4/17) - leading the list of tech names scheduled to report results this week.
Most likely this quarter won't be much different from all the others. Roughly 2/3 of companies will beat consensus estimates. However, Briefing.com suggests that investors focus less on the bottom line numbers and more on a) the top line and b) the guidance.
Early indications are that top-line numbers are running slightly below estimates (in general), with improved operating efficiencies resulting in as expected or better than expected bottom-line figures. This tells us two things. First, demand is still not there. Second, once demand finally accelerates operating leverage will lead to a significant improvement in earnings. Not there yet, but it's coming... really.
As for guidance, don't get your hopes up. Yes, the war is all but won but companies have yet to adjust their spending patterns. Consequently, look for the management of most firms to remain guarded in their outlooks for Q2. As long as cautionary comments are limited to Q2, market should hold up reasonably well. However, if we get a steady diet of firms sounding a cautious note not only for Q2 but for the remainder of the year, then investors might get a little spooked.
On a final note, all earnings reports are not created equal. Much attention will be spent on IBM and MSFT, but Briefing.com contends that Intel and Cisco likely to hold the key for the how sector responds to the current earnings period. Intel's management has been particularly dour in recent quarters so any change in tone will be viewed positively. Meanwhile, recent rumblings have CSCO struggling to meet top line estimates for Q1 and Q2. Given growing skepticism, CSCO only has to meet consensus figures for its report to be considered bullish. History suggests that is exactly what the company will do. Recent history also suggests that a strong CSCO report can, and usually does, have a positive impact on rest of sector.
For all the earnings news as it unfolds, see Briefing.com's In Play and Economic Calendar pages.
Robert Walberg, Briefing.com
1:53PM Unusual Volume -- TranSwitch trades up 22% on 3x avg volume (TXCC) 0.67 +0.12:
10:19AM Motorola estimates lowered at Bear Stearns (MOT) 8.04 +0.04: Although firm believes MOT will likely meet its previous Q1 rev target of $6.1 bln, concerns over weaker U.S. handset trends, increased handset competition, and weaker wireless infrastructure trends lead firm to lower Q2 and 2003 estimates; Q2 rev est goes to $6.5 bln from $6.8 bln and 2003 to $27 bln from $27.6 bln.
9:34AM Integrated Silicon: an overlooked recovery play (ISSI) 2.50 +0.09: SG Cowen identifies stock as an overlooked cyclical recovery play for small-cap value investors. Notes that co has no long-term debt and $2.30/share in cash, as well as another $2.41/share in investments. Firm's channel checks show stability in JunQ and 10% rev growth.
9:33AM Juniper Networks: Merrill maintains Sell rating (JNPR) 9.10 +0.69: -- Update -- Merrill Lynch maintains their Sell rating on JNPR despite better than expected earnings, citing: 1) book to bill was again greater than 1 but has not translated into rev growth, 2) the US mkt keeps shrinking, 3) accounts receivable grew 14% in past 2 qtrs vs 3% rev growth, 4) believes that demand for high-end core routers will remain weak, 5) believes edge routing rev will weaken, and most importantly 6) valuation, as stock trades at 4.3x their 2004 rev est and 87x P/E. Firm thinks any hiccup in the biz could bring down the shares to fair value of $6. (On the other hand, Deutsche Securities and WR Hambrecht both upgraded the stock to Hold this morning.)
8:29AM RBC downgrades Applied Materials, Lam Research : RBC Capital downgrades AMAT and LRCX to Sector Perform from Outperform based on recent revisions in their industry bookings model and outlook for the semi capital equipment sector; cuts AMAT target to $18 from $25 and LRCX to $16 from $22.
8:28AM Bell Micro cut to Hold from Buy at Needham (BELM) 4.88:
7:23AM Advanced Energy downgraded at JP Morgan (AEIS) 8.18: JP Morgan downgrades to Underweight from Neutral based on a weakening industry environment combined with a leveraged capital structure and heightened near-term execution risk; firm likes AEIS in the $5.00-$6.00 range, which is the upper end to modestly above their estimated trough range of 1.25x-1.75x tangible book value.
7:21AM Varian Semi upgraded at JP Morgan (VSEA) 19.80: JP Morgan upgrades to Neutral from Underweight based on attractive valuation as well as limited downside risk; VSEA shares trade at 1.61x price/tangible book, well within firm's estimated trough range of 1.3-1.8x, and net cash of $9.27/share combined with positive estimated C2003 EPS and free cash flow should provide investors an additional margin of safety; sees maximum downside to the mid-teens range and potential long-term upside to the low to mid $50s.
OmniVision (OVTI) 22.66 0.18: Announced that H.Gene McCown will resign his position as CFO as a result of his decision to retire. (Mr. McCown is listed as being 66 yrs of age).
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