Semiconductor Equipment . . . Applied Materials target raised to $21 at Morgan Stanley. The firm believes that company's flat 3rd quarter guidance is achievable, but believes expectations limit upside tied to the earnings report.
Semiconductors . . . NVIDIA will report July-Quarter earnings after the close on Aug 7 (Thurs) and will host a conference call at 2pm PET. The company has already pre-announced revenues in the $455-$460 million range, up 13% Quarter over Quarter at the mid-point. Analysts are at $456 million with a forecast EPS of $0.11, down a penny from the prior quarter despite the higher revenues, due to a 3- point reduction in gross margin estimate to 28.3%. Estimate Xbox revenues increased to $70 million in the July-Quarter, up from $27 million in the prior quarter. For the October Quarter, forecast revenues to increase 7.4% Quarter over Quarter to $490 million, and estimate EPS of $0.17. Analysts have modeled for a 2-point increase in gross margin, as we think NVDA should be able to resolve its NV31 manufacturing problems, given that it has been producing on 0.13-micron process for over half a year now. Though NVDA continues to gain share in the AMD chipset market (up 7.6 pts in 2nd quarter to 28.2%), chipsets represent only about 10% of revenues. Do not expect a market share recovery soon in its core GPU business, and do not expect to see material impact on earnings from new initiatives such as introducing nForce to Transmeta, possible entry into AMD notebook chipset market, and the MediaQ acquisition. Highlight the fact that though NVDA's share in the desktop standalone segment was relatively stable in 2nd quarter (down 0.6 pts to 63.9%), it suffered overall market share loss of 3.1 pts due to two secular trends: 1) continued penetration of integrated, where NVDA's presence is limited, 2) a marked shift towards notebooks, a trend expected to continue in 2H03 as Intel’s Centrino push continues. NVIDIA continues to be on the defensive, and expect its graphics market share to remain depressed in the high-20s for the remainder of this year. The stock is trading at 25x 2005 EPS estimate, and still see little upside from current levels. The only way we could turn more positive on the stock is if the NV35/NV38 shows better traction than ATI’s R360.
JP Morgan reits Underweight on Intel. The firm is saying it remains the most expensive stock under coverage trading at 31x their 2004 EPS est, well above its pre-bubble range of roughly 10-20x. In addition, the company disclosed in its 10-Q that it has received notice from the IRS of a proposed adjustment relating to a tax benefit from export sales that could increase the co's tax liability for 1999-2000 by about $600 mln, which could result in a reduction in EPS of about $0.08 to 1999 and 2000 earnings.
Silicon Image announced that a federal court has issued its Final Judgment Order on the patent infringement suit against Genesis Microchip. The court reaffirmed its July 15 ruling and ordered Genesis to make a cash payment as well as to pay all overdue quarterly royalty payments in exchange for licenses. None of the payments will be reflected in Silicon Image's financial reports if the judgment is appealed.
Broadcom was upgraded at Morgan Stanley to Overweight from Equal-Weight. The firm believes that investors are discounting a worst-case scenario for the server segment in 2004, but are not adequately giving the stock credit for the commpany's strength in its other business segments; firm says BRCM's emerging product segment was already 30% larger than ServerWorks in Q2, and expect it to grow more than four-fold this year and more than 80% in 2004. Target is $30.
Boxmakers . . . Hewlett-Packard 3rd quarter estimates were trimmed at Goldman Sachs. 3rd quarter rev/EPS estimates went to $17.4 billion/$0.26 from $17.7 billion/$0.27, versus consensus of $17.5 billion/$0.26. The firm says weakness in the European economy, soft enterprise sales, and a more aggressive PC pricing environment may make it difficult for HPQ to achieve the Street's 3rd quarter revenue estimate.
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