From Briefing.com: Updated: 21-Apr-03 - General Commentary - One week of earnings season down, and so far so good. The tech sector pushed higher on the back of mediocre earnings reports out of IBM (IBM), Intel (INTC) and Microsoft (MSFT). Positive surprises from Nokia (NOK) and Broadcom (BRCM) didn't hurt either.
Upon close inspection there really wasn't anything in the reports worthy of much celebration. Especially not to the tune of 4.9%, which was the gain registered by the tech heavy Nasdaq last week. But as we said going into earnings season, market was in a win/win situation. Any disappointing news gets blamed on the war, while positive surprises are a sign of good times ahead.
So as long as the sector/market can avoid an overwhelming flood of negative news, the near-term bias will remain positive. Looking at this week's earnings calendar (see Briefing.com's Tech Earnings Calendar or Earnings Calendar pages), it lacks the kind of market moving names that dominated the calendar last week. Notables include KLA-Tencor (KLAC), PeopleSoft (PSFT), eBay (EBAY), Sprint (FON), Corning (GLW), AT&T (T), Qualcomm (QCOM), Symantec (SYMC) and Veritas (VRTS). Each capable of influencing its particular group, but none with the market clout the likes of IBM, MSFT or INTC.
Consequently, even if the numbers skew to the negative, this week's earnings reports are unlikely to alter the market's upbeat mood. If the bulls are to be derailed it will come from the economic data - particularly the LEI and GDP-adv reports. -- See Economic Calendar for dates and estimates.
Barring some real discouraging economic data, the Pollyanna view toward earnings and the improving technical tone suggest that the tech sector will continue to lead the overall market higher. Nothing huge, but another 2%-3% is definitely within reach.
Robert Walberg
4:38PM Conexant beats by a penny, cuts debt by $100 mln (CNXT) 1.71 +0.07: Reports Q2 (Mar) loss of $0.11 per share, $0.01 better than the Multex consensus of ($0.12); revenues rose 6.5% year/year to $158.4 mln vs the $159.9 mln consensus. Co also announces that it has reduced the outstanding balance on its convertible debt due in 2007 by $100 mln.
4:24PM Xilinx tops estimates; guides revs higher (XLNX) 26.07 +0.54: Reports Q4 (Mar) earnings of $0.14 per share, $0.01 better than the Multex consensus of $0.13; revenues rose 11.7% year/year to $305.5 mln vs the $292.0 mln consensus; sees revenues expected up 1% to 5% sequentially which amounts to revs of $308-$321 mln vs the consensus of $302.5 mln; says gross margin expected to be approximately 60%.
4:18PM Xilinx headline $0.14; $0.01 better (XLNX) 26.07 +0.54: -- Update --
3:23PM Xilinx Earnings Preview (XLNX) 26.06 +0.53: Xilinx reports its Q4 after the close today with Multex consensus earnings estimates of $0.13 per share with revenues of $291.9 mln. In general, most analysts expect the co to perform either in line or above current expectations. In a Lehman note, the analyst states the co should report "rev growth at or above the high end of guidance of 4% and consensus of 3.2%." Analyst's are concerned over its strong momentum in early March coupled with the effects of a post war market environment. In addition, analyst will be looking for more visibility given its present high turns (orders booked and shipped in the same quarter) orders environment. In the last three earnings announcements, the stock has had mixed reactions of -4.7%, 1.0% and 1.3% for its Q3 (in-line), Q2 (beat by $0.01), and Q1 (in-line) results, respectively. (Please note that these percentages represent the difference between the closing prices of the actual reporting date and the next trading day.)
4:21PM Fairchild Semi beats by $0.01 (FCS) 11.86 +0.49: Reports Q1 (Mar) earnings of $0.04 per share, $0.01 better than the Multex consensus of $0.03; revenues rose 4.2% year/year to $351.1 mln vs the $347.1 mln consensus. Company guided Q2 revs to be flat with operating margins similar to or better than Q1.
4:12PM Atmel misses by 2 cents, guides Q2 revs below consensus (ATML) 2.14 +0.14: Reports Q1 (Mar) pro forma loss of $0.09 per share, $0.02 worse than the Multex consensus of ($0.07); revenues rose 7.5% year/year to $296.5 mln vs the $305.3 mln consensus. Expects Q2 revs of $302-$308 mln, vs consensus of $317.6 mln.
4:09PM PMC-Sierra beats by $0.02 (PMCS) 6.87 +0.38: Reports Q1 (Mar) loss of $0.04 per share, $0.02 better than the Multex consensus of ($0.06); revenues rose 5.4% year/year to $55.4 mln vs the $52.4 mln consensus.
4:06PM PMCS headline -$0.04, $0.02 better :
4:07PM MKS Instruments beats by a penny, revs light, issues Q2 forecast (MKSI) 12.90 +0.72: Reports Q1 (Mar) loss of $0.07 per share, $0.01 better than the Multex consensus of ($0.08); revenues rose 23.2% year/year to $72.8 mln vs the $74.9 mln consensus. Expects Q2 pro forma loss of $0.03-$0.08 on $73-$78 mln in revs, vs consensus of ($0.07) and $76.3 mln.
4:05PM Helix Tech beat by $0.04 (HELX) 8.48 -0.09: Reports Q1 (Mar) loss of $0.05 per share, $0.04 better than the Multex consensus of ($0.09); revenues rose 15.9% year/year to $23.6 mln vs the $24.0 mln consensus.
3:56PM Microtune announces injunction against Broadcom Tuner (TUNE) 2.34 +0.12: Announces that a U.S. District Court has issued a preliminary injunction barring Broadcom (BRCM 16.52 +2.36) from selling, offering to sell, or importing into the United States its BCM3415 silicon tuner and certain reference design boards containing the BCM3415.
1:51PM Intel testing important resistance (INTC) 18.51 +0.35: -- Technical -- The issue is back probing resistance at its 200 day ema (18.60), which was key on a closing basis in Dec and March. Intraday supports at 18.45 and 18.36 remain intact during a pullback from this resistance and the door is expected to remain open for another upside foray. The next levels of interest, if able to penetrate, are at 18.90 (March closing high) and 19.01 (March intraday high).
1:46PM Nasdaq testing significant resistance at 1419 to 1423 : -- Technical -- Nasdaq (1420 +26) testing significant resistance at 1423 -- this area has been a sticking point for about one month now -- it carries significance going back six years, and was addressed in detail on Briefing.com back on March 19th. Should the index break higher, look for modest additional overhead at 1431. On an intraday basis, look for the 1419 to 1423 range to serve as an intraday pivot point. To the downside, the index has subsequent support at 1411. For a more detailed account of the current technical outlook, please click here. Note the Nasdaq has yet to experience intraday sell pressure of any magnitude.
12:16PM Cypress call update (CY) 8.47 +0.26: On the conference call, the co breaks out the following book-to-bills by product divisions: memory, 0.99 to 1; datacom, 1.00 to 1; timing technology, 1.11 to 1; personal communications, 1.17 to 1, which was driven by its USB 2.0 business.
11:50AM Cypress call update (CY) 8.43 +0.19: On conference call, company states bookings up 8.5% q/q with recovery being "broad based". The co stated it is going into the second quarter 63% booked with strong backlog and encouraging turns business (products booked and shipped in the same quarter).
11:01AM Sector Watch: Semiconductor : Solid gain for the group after a choppy start with the index (SOX 323.50) recently pushing to a fresh session high. Pacing the way this morning are: BRCM +13.7%, AMAT +2%, NVLS +1.9%, ALTR +1.8%, LLTC +1.5%. A minor resistance for the index is at 324.25/324.35 in front of yesterday's peak at 325.17. The April high follows at 327.32. Yesterday's high for the Semi HOLDRs (SMH 25.80) is at 25.95 with the 200 day ema, which capped the upside earlier in the month, at 26.34 (April high 26.51).
10:11AM Nokia moves to new three month high (NOK) 15.99 +0.81: -- Update -- -- Technical -- Issue was able to breach the resistances mentioned earlier (see 09:33 comment) and is now approaching resistance at the bottom of its Jan 16 gap (16). If able to take out this barrier, the next level of interest is in the 16.10/16.14 area with the top of the gap not coming into play until 16.26.
9:30AM Parametric upped to Buy from Hold at Needham (PMTC) 2.62 +0.09: For the first time in years, firm believes that PTC is in position to grow its business. With the Feb launch and a handful of early marquee wins, Needham has become more optimistic about co's outlook. Needham believes stock could reach $4.50 in 12-18 months. Stock also upgraded at Adams Harkness this morning (Mkt Perform from Reduce).
9:01AM Cree reiterated Reduce at UBS; target $17 (CREE) 23.07: -- Update -- UBS says that on the conference call CREE indirectly acknowledged many of the concerns firm has been raising in recent qtrs. CREE is sampling new Xbright product that alleviates shortcomings in previous versions, as UBS had reported. Co is also reviewing legal options to protect its intellectual property that is being threatened by Taiwanese and other new entrants. Historic precedents lead firm to be skeptical regarding the ability of litigation to halt competitive encroachment.
3:38PM Chart Watch -- S&P 500 : Next week has the potential to be very interesting for the S&P 500. A quick gander at the chart below of the index shows why. Although it remains within a month long trading range, it is within relatively easy reach of a number of intermediate term resistances. The list includes the upper end of the range from earlier this month (904.89); the 200 day ema (blue line at 905.23) which has been a key during previous recovery attempts over the last three years, and two trendlines. The first (green line) is off the highs of Dec and Jan which the index is attempting to close above today (890) and the other (orange line) is based on the closing highs for the the index (roughly 910).
A sustained penetration of this list of barriers from an intermediate term perspective would open the door to the upper end of the now nine month broad trading range. This is marked by the highs from Jan (935), Dec (954) and Aug (965). As always, there are some technical concerns ranging from the posture of some technical indicators as the important resistance is being approached to the lowest levels in some time for the volatility readings (VIX, VXN, QQV) but at this juncture there are no signals. A failure from an intermediate term perspective merely keeps the trading range bias dominant.
Send comments or suggestions to -- Jim Schroeder, Briefing.com
10:03AM Applied Micro (AMCC) 3.67 +0.18: UBS Warburg upgrades Neutral to BUY. Target $4. Based on checks that suggest AMCC is complementing its core strengths in optical core ICs with new product opportunities in metro market and other performance intensive semiconductor markets.
11:09AM Ahead of the Curve: CREE (CREE) 19.09 -3.98 (-17.3)% One of our all-time favorite stocks, this company has everything you look for in an investment. Large growing market in which the company is the only supplier of a proprietary unique product. Even better, most of the research capital spent to develop the product came from the US government. Cree is the only manufacturer of silicon carbide, a pure form of silicon that can be made into semiconductors. Regular silicon has to be "doped" before it can be used for semiconductor applications. Silicon carbide costs more than regular silicon will probably never replace it as a platform for semiconductors (if it could, Cree would be the type of stock you put everything into). However, silicon carbide has many unique applications, most of which are in markets that are only just now beginning. It is one of the few corners of technology that is both showing and is likely to continue to show, solid growth.
Report Item Q1 2003 Q1 2002
Revenue (millions) $ 60,223 $ 33,376
Gross Margin 46.6% 25.1%
Gross Margin on product 49.8% 23.6%
Product Mix of Revenue 89.3% 85.6%
Operating Margin 21.9% -29.2% (excluding extraordinary exp)
Net Margin 17.7% -79.7% (excluding extraordinary exp)
Everything about Cree's business development is appealing. Rapid revenue growth, expanding margins, sustainable competitive advantage, expanding market. The difficulties and losses in Q1 of last night are not meaningful, in our opinion. The trailing multiples on the stock don't look good, but with 2002 behind it, the forward multiples aren't exactly cheap, but they look reasonable for a stock with a 17% net margin, revenue growth at 50% annual pace and improving margins. The forward PE is just 25 for the coming twelve months. Heck, there are tech stocks with no margin, no revenue growth, and squeezed margins that are getting this type of PE.
Even better, the stock is off this morning in profit-taking. For long term investors, this presents a buying opportunity and a chance to add to existing positions. This is what we love, frankly, and we haven't seen this type of action (good stocks selling off on good news) in the stock market for a long, long time.
Cree was first suggested to us by other Briefing.com readers in the fall of 1998, just before the AEA show that year. At the time, we had never heard of it. On a split-adjusted basis, the stock has more than doubled since that time. (Of course, there were opportunities to sell the stock at well over $100 ($200 pre-split) for a nearly ten-fold return.) If you ignore the bubble abnormality, however, doubling of a stock over five years is roughly a 15% annual return. There were days when that was absolutely fantastic. We think those days are back - meaning 15% returns for five years are going to be rare - but Cree has a good shot at continuing that pace going forward. (Note - if you readers have any other stocks we've never heard of to suggest - send them to me.) - Robert V. Green, Briefing.com
10:44AM Technical Levels: So this resistance in the range of 1419 to 1423 continues to be a sticking point. After opening Wednesday at 1411, the Nasdaq pushed to an intraday high of 1418.5, before backing off yet again to close towards its session lows. This marked the third failed attempt at this area in less than a month.
Frequent readers know this resistance in the range of 1419 to 1423 as a significant technical level that carries longer-term implications. For those less familiar, this narrow four-point range brackets 1) the September 11th-induced reaction lows, which bottomed at 1423, and 2) the reaction lows all the way back at October 1998, which bottomed at 1419. Recall we addressed this area in excruciating detail on March 19th -- two days prior to the Nasdaq's initial top back on March 21st.
Now it's worth noting the price action coming off this third failure was somewhat different than the prior two tests. This difference impacts the current technical picture and will be addressed at the tail end of today's review.
This first chart above serves as an 'up close' look at yesterday's price action. As always, this is an intraday chart of Wednesday's trade activity in which each bar on the chart represents the opening and closing levels for each five-minute time frame. Note several of the levels we were looking towards yesterday have been drawn in above.
We already touched on the intraday high, which was touched relatively early in the session at 1418.5. Also note our initial support at 1400, and our final support at 1392, were very close to the mark as well -- the Nasdaq touched an intraday low at 1391.99.
To read the remainder of this review -- which addresses the implications of that third test at 1419 -- please click here to visit Briefing.com's Stock Brief page. -- Mike Ashbaugh, Briefing.com
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