From Briefing.com: 8:42AM QLogic upgraded at Merrill Lynch (QLGC) 51.48: Merrill Lynch upgrades to Buy from Neutral following stronger than expected results; firm says the co's outlook is bright, and related companies (NTAP, BRCD, and MCDTA) are trading at higher multiples; also, even though firm is modeling flat sequential gross margins in the Dec qtr, this metric should be positively supported by a continued ramp of dual-channel adapters, continued SCSI-FC mix shift, rev upside, and possible introduction of the ISP 2332 integrated chip with on-chip memory. Target is $65.
8:41AM Cypress Semi beats by $0.02, book-to-bill 1.06 (CY) 19.70: Reports Q3 (Sep) earnings of $0.08 per share, $0.02 better than the Reuters Research consensus of $0.06; revenues rose 5.7% year/year to $216.6 mln vs the $214.1 mln consensus. Company's book-to-bill ratio was 1.06
8:34AM KVH Industries reports in line; guides for Q4 (KVHI) 28.05: Reports Q3 (Sep) loss of $0.01 per share, in line with the Reuters Research consensus of ($0.01); revenues rose 8.7% year/year to $13.5 mln vs the $13.4 mln consensus. Co. sees Q4 (Dec) revenues in the range of $16.9-19.5 mln, estimate is $17.7 mln.
8:27AM Adv Fibre Comm may be set to win major contract (AFCI) 23.85: Lehman Brothers says yesterday it received credible information to support firm's belief that AFCI is about to be awarded the sole supplier position for FTTP systems at Verizon. Firm estimates, depending on the ultimate purchases, that incremental revs could equal roughly 10% to perhaps more than 40% of firm's current 2004 sales projection of $380 mln. Firm reits its Overweight rating and expects the stock to rise well above firm's $24 price tgt as this news is eventually confirmed.
8:23AM Celestica upgraded at Wells Fargo (CLS) 17.40: Wells Fargo upgrades to Buy from Hold, saying they view the proposed acquisition of MSL by CLS as a strong positive, as the combined co would likely have a stronger, more diversified, and less cyclical customer base, as well as enhanced supply chain mgmt capabilities. Target is $21.
7:48AM Mercury Computer reports in line, guides Q2 below consensus (MRCY) 23.95: Reports Q1 (Sep) earnings of $0.15 per share, in line with the Reuters Research consensus of $0.15; revenues rose 2.8% year/year to $40.5 mln vs the $40.5 mln consensus. Co also guides Q2, sees EPS of $0.13-0.17, vs the R.R. consensus of $0.20, and revenues of $39-42 mln vs an estimate of $45 mln.
7:47AM Honeywell reports in-line (HON) 29.14: Reports Q3 (Sep) earnings of $0.40 per share, in line with the Reuters Research consensus of $0.40; revenues rose 3.6% year/year to $5.77 bln vs the $5.65 bln consensus.
7:47AM Lam Research upgraded at SG Cowen (LRCX) 27.64: SG Cowen upgrades to Outperform from Mkt Perform, saying they would buy on any weakness given evidence of share gain in dielectric etch, continued operational improvements, and their bullish overall view on the building cycle.
7:35AM Ultratech Stepper beats by $0.06 (UTEK) 31.51: Reports Q3 (Sep) earnings of $0.13 per diluted share, $0.06 better than the Reuters Research consensus of $0.07; revenues rose 263.0% year/year to $26.5 mln vs the $26 mln consensus.
7:35AM Unisys upgraded at Smith Barney (UIS) 14.84: Smith Barney upgrades to Buy from Hold and raises their target to $19 from $15 based on: 1) an under-appreciated shift to higher multiple business process outsourcing, 2) current pipeline of contracts could provide catalysts in next 1-2 qtrs, 3) their expectation of stabilization in the IT services mkts that UIS services gives them greater confidence in their above-consensus 2004-05 ests, 4) cash flow is improving and firm expects that free cash flow in 2004 could be $140-150 mln, and 5) investor focus is gradually shifting to services analysts, leading to re-evaluation.
9:29AM The Technical Take : Minor losses for the market averages on Wednesday which on the surface is not of particular significance or interest in the wake of the recent string of gains. However, the fact that the highs for day, which established new 52-wk highs, were set in the first few minutes of trade with the reversal marked by stronger and above average volume (distribution day) at least raises a near term warning flag particularly when the top heavy technical posture is taken into account. There are names in the trade arena for this type of action (gap and trap) but clearly some of the institutions used the strong news related push off the open to book some profits.
The overall action in the majority of the sector indices has been very bullish but the sizeable downward rotation off early highs and the poor close in recent leadership groups such as homebuilding, broker/dealer, education, semiconductor is also worth noting. The weakest sectors over the last week or so continued to merely vacillate within recent ranges which again points to profit taking and not yet to an underlying technical deterioration.
Nasdaq Composite: A look at the hour chart below highlights key levels that will provide near term guideposts. You may be getting tired of hearing this but once again the 20 exp mov avg (hourly chart) was key yesterday. We have noted previously that it provides intraday/daily trend development and on Wednesday it held during the afternoon downside extension. In fact, since this latest leg higher was established early in the month we have not had a single close below this average despite several minor intraday penetrations. The average starts the session at 1936 with the Nasdaq Comp closing yesterday at 1939.10. The pre-market readings suggest a slightly weaker start to the day so we will be watching to see if the index sustains a penetration and begins to work on the next support levels of interest below yesterday's low (1933.03). Next up is 1925 (congestion), followed by 1921/1919 (Sep 10 high/Sep 13 low, 50 period simple mov avg). On the upside we have 1940 and 1943 in front of a more important level at 1952. This marks the initial recovery high after yesterday's reversal with a penetration here raising the probability that the pullback of yesterday's high will be relatively short lived.
From Briefing.com last night: Stocks opened higher on Wednesday, fueled by a thin ray of hope that an outstanding Q3 performance by Intel (INTC 31.76 +0.68) would translate into across-the-board growth and margins expansion sufficient to support equity market valuations. By the end of the day, hope had faded into wariness and the markets had given up the gains and slipped into negative territory. The Dow closed at 9803.05, down 9.93, the S&P was off 2.72 at 1046.76, and the Nasdaq slipped 4.09 to 1939.10. With the exception of Intel and semiconductor capital equipment stocks, tech shares generally ended lower.
We see in this lull the peaking of a tide that has floated all shares. The early optimism over favorable fiscal and monetary policies, that fueled the past year's rally and took the Nasdaq up 45.2% year-to-date, is essentially spent. With every rising tide, there is an inevitable backwash. Even though, broadly speaking, equities are modestly undervalued based on the Fed model, in order to move forward, there needs to be convincing evidence of growth and margins expansion necessary to sustain valuations, particularly for tech shares. Intel delivered on the growth and margins. Industry conditions are such that Novellus Systems (NVLS 38.54 +1.12) offers a real promise of growth and margins expansion. Despite our cautious optimism, International Business Machines (IBM 92.74 +0.02) has yet to fully deliver. Assess valuations against company fundamentals, and adjust your portfolio accordingly.--Ping Yu, Briefing.com
Wednesday After Hours price levels vs. 4pm ET: Buyers have not found a ton to get excited about with a handful of top-line misses weighing heavily on the after hours trade. Presently, the S&P futures, at 1043, are 3 points below fair value, and the Nasdaq 100 futures, at 1412, are 8 points below fair value. Tech giant IBM (IBM 89.80 -2.94) set the tone for the night with its Q3 (Sept) report that was short of the revenue consensus estimate.
Specifically, the Dow component's net sales increased 9% from the year-ago period, to $21.52 bln versus the $21.85 bln Reuters Research estimate. A 17% increase in global services sales, to $10.4 bln (including the addition of the former PwC Consulting business) provided the large bulk of the revenue growth. As for EPS, that inched 3% higher, to $1.02, which was in line with the consensus expectation.
Software company Siebel Systems (SEBL 12.00 -0.43) committed a similar offense by coming up shy of the revised Q3 (Sept) consensus revenue estimate. After preannouncing lower than expected sales on October 2, management reported a 10% fall to $321.4 mln (consensus of $323.2 mln) that was, actually, in line with its original forecast of $320-322 mln. License revenues, separately, were $110 mln and also within the range provided by management. Siebel also announced that it would be acquiring UpShot Corp, a pioneer in delivering hosted CRM service over the Internet, in a cash transaction valued at up to $70 mln.
Storage company QLogic (QLGC 51.45 -0.03) did beat the top and bottom-line consensus estimates, but even its stock has not received a bid from investors. Q2 (Sept) net income and revenues rose to record levels, with EPS checking in at $0.37 and revenues coming in at $132.3 mln. The company attributed the 24% increase in sales to a significant increase in sales of its Fibre Channel products. Competitors of QLGC include the likes of BRCD, ELX, and MCDT.
Shares of Apple Computer (AAPL 23.92 -0.90) have also found themselves the targets of profit-taking following the company's better than expected Q4 (Sept) report. Apple reported net income of $0.08 per share, which was a penny better than the consensus forecast, and revenues that rose 19% to $1.72 bln. Management also said that it saw Q1 (Dec) revenues of $1.9 bln (consensus of $1.79 bln) and Q1 GAAP EPS slightly up from Q4 GAAP EPS, which were $0.12. As this metric was given on a GAAP (and not pro forma) basis, it is unclear if it is comparable to the consensus estimate of $0.13.
Finally, Lam Research (LRCX 26.41 -1.23) stock has tumbled nearly 5% in the extended session following the semiconductor company's Q1 (Sept) revenue miss. Specifically, revenues fell 1% to $183.7 mln as compared to the $187.4 mln consensus. Management stipulated, though, that new orders of approximately $211 mln in Q4 (June) represented 10% sequential growth, showing that 'there are early signs that demand for wafer processing equipment is improving
SanDisk (SNDK) 78.65 +3.21: Before the open, reported Q3 earnings of $0.60 per share, $0.15 better than the Reuters Research consensus; revs rose 99.4% year/year to $281.4 mln vs the $246.2 mln consensus. Co says that sale of UMC stock helped to raise its tax rate to 35% from the approx. 15% projected at the beginning of the qtr. For 2003, co expects revs to exceed $1 bln, up from firm's previous forecast of $950 mln (consensus $954.28 bln). Co says that it expects the "primary challenge will be to meet consumer demand for our products" during Q4. Separately, co also has news about the misappropriation of proceeds of UMC sale by attorney of Taiwanese law firm; see next SNDK entry for details. Along with earnings, SNDK announces that it was advised by its Taiwanese law firm, Lee and Li, one of the largest law firms in Asia, that one of Lee and Li's senior associates had fraudulently sold, and misappropriated the proceeds from, approx 121 mln shares of SanDisk's United Microelectronics Corp stock held by Lee and Li on behalf of SanDisk pursuant to a power of attorney. The current market value of the misappropriated shares is approx $100 mln. In a press release issued late yesterday in Taiwan by Lee and Li and in a separate written assurance, the firm stated that it will not let SanDisk suffer any loss as a result of its former employee's criminal acts. SanDisk is investigating whether it is insured against any portion of this loss.
QLogic Earnings (QLGC) 51.48 -0.85: QLogic is scheduled to report Q2 earnings after the close, with consensus standing at $0.35 in EPS and $131 mln in sales. JP Morgan expects the co to meet or beat these numbers, and expects the co's string of steady rev growth to continue despite seasonally soft demand conditions in Sept; firm looks for QLGC to cite strength from Fibre Channel HBA sales, particularly with Dell's increased selling of Clariion products, and QLGC should also see momentum from embedded switches and a continued shift from SCSI disc drive controllers to Fibre Channel; in addition, following 2 weak qtrs, firm expects QLGC's SCSI biz to stabilize given improved execution by its largest SCSI customer, Fujitsu. (For a preview of tonight's IBM earnings report, see Ping Yu's write-up in the Stock Brief section.)
Exar Corp (EXAR) 16.04 -0.04: Before the open, reported Q2 (Sep) non-GAAP earnings of $0.04 per share, excluding an asset impairment write-down, $0.01 better than the Reuters Research consensus of $0.03; revenues fell 14.7% year/year to $16.2 mln vs the $16.0 mln consensus. Co also guides Q3, sees EPS of $0.03-0.04, vs the R.R. consensus of $0.04, and revenues of $16-17 mln vs an estimate of $17 mln.
Intel (INTC) 31.76 +0.68: Merrill Lynch reiterated their Buy rating and raised their target to $40 from $32 after the co beat Q3 ests last night; firm says the stock looks significantly undervalued at 26x their new 2004 est of $1.20 (up from $1.00), and they see solid ASPs, falling depreciation, and little real competitive threat from AMD for the intermediate term.
Linear Tech (LLTC) 40.88 -1.12: Wedbush Morgan upgraded to Buy from Hold following stronger than expected earnings; firm says they are quite confident that growing mobile PCs, high-end cell phones, consumer electronics, and automotive will accelerate rev growth and will allow it to exceed the still conservative consensus ests of $737 mln for FY04 and $884 mln for FY05; target is $50.
PLX Tech (PLXT) 7.51 -0.16: After the close, reported Q3 (Sep) pro forma earnings of $0.02 per diluted share, which excludes effect of acquisition-related costs, $0.02 better than the Reuters Research consensus of $0.00; revenues rose 24.1% year/year to $10.3 mln vs the $10.0 mln consensus.
QLogic (QLGC) 51.48 -0.85: After the close, reported Q2 (Sep) pro forma earnings of $0.37 per share, $0.02 better than the Reuters Research consensus of $0.35; revenues rose 23.5% year/year to $132.3 mln vs the $130.8 mln consensus.
Transmeta (TMTA) 4.96 +0.31: After the close, reported Q3 (Sep) loss of $0.13 per share, in line with the Reuters Research consensus of ($0.13); revenues fell 57.8% year/year to $2.7 mln vs the $5.1 mln consensus. Company sees Q4 pro forma loss of $0.13, consensus is a loss of $0.12;sees "fourth quarter revenue to be flat to up 50 percent, depending on how quickly its new Efficeon designs ramp".
Credence (CMOS) 15.46 +1.43: Adams Harkness upgraded to Strong Buy from Mkt Perform and raised their target to $23 from $10 based on research that indicates stronger than expected Oct qtr orders, strength in the flash memory segment, and the progression of the Octet product toward production use.
Cymer (CYMI) 45.27 3.72: Moors & Cabot upgraded to Sector Outperform from Sector Perform based on improving industry fundamentals as well as their belief that the stock will outperform the semi capital equipment space in the next recovery cycle; firm believes further proof of a gradual trend towards a recovery was found in the guidance provided in ASML's Q3 earnings call this morning, co's inventory situation is working itself down, co continues to gain traction for its new XLA-100 product, and checks suggest the co is witnessing increasing activity over potential new orders in Q4 and early 2004. Target is $55.
Lam Research (LRCX) 27.64 +0.12: After the close, reported Q1 (Sep) earnings of $0.04 per share, ex-items, $0.01 better than the Reuters Research consensus of $0.03; revenues fell 1.3% year/year to $183.7 mln vs the $187.4 mln consensus... Co says new orders of approx $211 mln in Q3 represent 10% sequential growth, continuing the positive momentum started early in the calendar year. "There are early signs that demand for wafer processing equipment is improving."
Novellus (NVLS) 38.54 1.12: Novellus upped to Buy from Hold with a price target increased to $42 from $40 at Berean Capital. The firm believes the following: the semiconductor capital equipment industry is on the cusp of a secular growth, the stock has some upside and will be buoyed by industry outlook and playing to expectations based on the bookings growth and a P/B for NVLS of 2.75x versus its peers at 3.2x, the industry outlook for bookings is positive and should provide earnings and top line momentum. The analyst notes the Q4 order swing to 5-10% was due to a last minute $10-12 million order from MU for Sabre tools and SMIC jumping in and ordering 300mm tools. |
