From Briefing.com: Tech shares closed Tuesday down on average 1.5%. Decliners led advancers 2.9:1 with decliners dropping an average 3.2% and advancers gaining 3.1%. This compares against a decline of 4.12% for the Philadelphia Semiconductor Index (SOXX 478.74 -20.56). Among the 18 large companies that make up the index, shares were down 2.41-5.38%, including Texas Instruments (TXN 27.49 -0.75), which opened very modestly higher but closed down 2.7% despite raising revenue and earnings guidance.
After opening the day flat, tech shares steadily gave up ground until around 11:30am ET when prices stabilized as investors awaited the outcome of the FOMC (Federal Reserve Open Market Committee) meeting. Selling pressure resumed immediately following the Fed's announcement that accommodative policy can be maintained for a "considerable period" (please visit the Fed Brief page for a discussion of the FOMC action) and that the risk of an unexpected decline in inflation is now diminished. Investors interpreted the Fed's pronouncement as a setting of the stage for an eventual increase. Briefing.com continues to believe the Fed is unlikely to raise rates until at least the second-half of 2004 (please visit the Big Picture page for why we think the Fed will sit tight).
We remain modestly bullish on tech over the long-term but concerns regarding valuation will continue to limit advances near-term. With growing fear of a rate increase and valuations already pricing in growth and margins expectations that far exceed actual performance (and for many companies, levels that are unsustainable over the long-term ), the direction of greatest resistance for tech is higher. We would continue to protect gains as opportunities permit.--Ping Yu, Briefing.com
Group % Change % Change Advancers % Change Decliners Ratio Advancers to Decliners
All Technology (based on a composite of over 1000 tech companies) -1.5% 3.1% -3.2% 0.3:1
Audio & Video Equipment -0.7% 0.2% -1.9% 0.3:1
Communications Equipment -1.8% 3.6% -3.9% 0.4:1
Communications Services -0.4% 2.3% -2.6% 0.8:1
Computer Services -1.3% 2.7% -2.8% 0.3:1
Computer Sys & Peripherals -1.6% 4.9% -3.6% 0.3:1
Electronic Instruments & Controls -1.3% 2.4% -2.6% 0.3:1
Scientific & Technical Instruments -1.5% 3.6% -3.1% 0.3:1
Semiconductors -3.1% 4.2% -4.0% 0.1:1
Software & Programming -1.2% 3.5% -3.1% 0.4:1
6:19PM Tuesday After Hours prices levels vs. 4 pm ET: Tonight's trade has been relatively lackluster, and that owes to the limited number of news announcements. A smattering of earnings pronouncements, management changes, and drug updates have predominated the action, and none have them have been especially significant. Presently, the S&P futures, at 1061, are 1 point above fair value, and the Nasdaq 100 futures, at 1384, are flat with fair value.
Manufacturer of photomasks, Photronics (PLAB 16.25 -0.53), has seen its stock stumble 3% after missing on the top and bottom-line in its Q4 (Oct) report. Photronics reported EPS of $0.10 and revenues of $91.5 mln versus the Reuters Research consensus estimates of $0.12 and $93.6 mln, respectively. A direct competitor of PLAB, DuPont Photomasks (DPMI), has also weakened in the extended session.
Autozone (00C 91.45 +0.11) also had earnings news, and showed strong upside with its Q1 (Nov) bottom-line result. EPS increased 30% from the prior year period to $1.35 and exceeded the Street's expectation by $0.07. The 5% rise in revenues to $1.28 bln, however, slightly missed the consensus estimate of $1.30 bln. This fact has not bothered investors much as the stock has actually moved higher in the after hours trade.
Turning to the drug space, Millenium Pharmaceuticals (MLNM 16.35 +0.14) announced that its phase I/II study results from an investigator initiated study (IIS) examining the use of Velcade in combination with thalidomide in patients with advanced stage multiple myeloma were 'promising.' The company presented the data at the 45th Annual Meeting of the American Society of Hematology (ASH).
As for management news, Gap Inc (GPS 20.76 -0.02) founder and Chairman Donald Fisher said he plans to retire from his post in May. The company's board appointed Robert J. Fisher, who currently serves as a Director and is Mr. Fisher's son, as the new non-executive Chairman. Currently, Donald Fisher, his wife Doris, and Robert, all hold seats on the company board, according to Gap's 2002 proxy statement. The specialty retailer recently announced the resignation of longtime board member John Lillie - with whom the company replaced with an independent director.
Finally, the Missile Defense Agency (MDA) awarded Lockheed Martin (LMT 48.70 +0.28) a potential 10-year contract valued at approximately $4.6 bln to manage the overall missile defense targets and countermeasures portfolio. The aerospace company will be responsible for overseeing the design, development, procurement and testing of target systems that represent the evolving ballistic missile threats the US faces.
For complete coverage on these, and other developments, be sure to visit Briefing.com's Stock Market Update and Daily Sector Wrap pages. -- Heather Smith, Briefing.com
11:53AM Texas Instruments (TXN) 27.97 -0.27: After the close Monday, management guided for Q4 EPS of $0.18-0.20 ($0.25-0.27 including $0.07 from sale of 32.3MM shares of Micron Technology (MU 11.75 +0.14) stock on revenue of $2.640-2.765B (+23.0-28.8% Y/Y), vs. prior guidance of $0.14-$0.19 on $2.490-$2.700B and Reuters Research consensus at $0.17 on $2.627B.
Semiconductors: $2.33-2.44B vs. prior guidance of $2.185-2.365B.
Sensors: $245-255MM vs. $235-255MM.
Educational & Productivity Solutions: $70-75MM vs. $70-80MM.
Management is seeing strength across geographies with wireless markets stronger than expected. Strong wireless performance driven by both favorable ASPs (average selling prices) and unit growth; high-end handsets are doing well. But wireless not the only story; improving visibility across product lines with backlog extending. Broadband business is seeing strong demand for DSL solutions as well as strength within China market.
Capacity utilization remains high; achieving gross margin in the 70-80% range for some products.
Valuation
On an inverted DCF/EVA basis, assuming 20% operating margins, TXN's valuation implies that management must grow revenue by 20% per year for the next ten years in order for investors to justify owning shares at current valuation.
On a price multiples basis, shares trade at 5.0x C03E revenue of $9.7B and 4.2x C04E revenue of $11.4B; 59.5x C03E EPS of $0.47 and 32.9x C04E EPS of $0.85.
Summary
Mid-quarter update confirms our thesis that TXN stands to realize substantial economies of scale on investments the company made in advance processes, including 130nm copper on 300mm, in 2000 and 2001; that these yield enhancements, and the efficiencies attendant with strong growth will result in gross and operating margins beyond our model.
Global recovery/expansion as well as secular trends, including shift to mobile, digitized formats for everyday processes such as computing, picture taking and video viewing as well as broader adoption of wireless telephony, support semiconductor industry forecast of 20%+ revenue growth. Focus on companies with 1) strong competitive profiles positioned to capitalize on these trends, 2) above industry average growth prospects, and 3) high operating leverage business models including: TXN, Analog Devices (ADI 46.46 -0.14) and Intel (INTC 30.91 -0.73).--Ping Yu, Briefing.com
Trident Micro (TRID) 25.21 +1.86 : CE Unterberg reiterated their Buy rating, raised their FY04-05 ests above consensus, and raises their target range to $27-$31 from $25-$30; firm believes that the Dec qtr is shaping up to be even stronger (up ~60% QoQ) than the co's guidance of 25-35% QoQ growth due to a combination of strong demand for Digital TVs and pull-ins from Q1 resulting from the early Chinese New Year.
Texas Instruments (TXN) 27.49 -0.75 : JMP Securities upgraded Texas Instruments (TXN) to Outperform from Mkt Perform after the co raised Q4 guidance during its mid-qtr update; firm believes that the Q4 strength goes beyond mere seasonality and reflects TXN's increasing momentum in 2.5G/3G cell phone DSP processors, chipsets, and analog/mixed signal products, with a good balance between blue-chip OEMs (Nokia, Sony-Ericcson) and emerging OEMs/ODMs in Taiwan and China. Target is $35. Company announced it will present results demonstrating the viability of its new high-k dielectric material at International Electron Devices Meeting. TXN states that its process to integrate Hafnium Silicon Oxynitride (HfSiON) high-k dielectric material in its transistor is a critical development in continuing to deliver the promised improvements of Moore's Law.
United Micro (UMC) 4.89 -0.17 : Reported Nov sales up 28.3% yr/yr
Xilinx (XLNX) 34.95 -1.38 : Co announced the appointment of Boon C. (B.C.) Ooi to vice president of worldwide operations. Ooi most recently served as vice president of the corporate technology group and director of operations Intel. He replaces veteran Xilinx executive Randy Ong, who is taking a two-year sabbatical after more than 13 years with the company.
Cree (CREE) 17.15 +0.11 : Raised Q2 (Dec) revenue guidance from previous guidance of $70 mln to revised expectation of $72-73 mln, Reuters consensus is $70.6 mln. Company also sees Q2 earnings above the previous target range. CREE cites "L.E.D. demand has exceeded the previous forecast while the Company has also experienced improved price stability and operational efficiencies" for upside revision. SoundView raised its DecQ estimates following Cree's (CREE) preannouncement; EPS est goes to $0.15 from $0.14 and revs to $73 mln from $70 mln. However, firm says no change to its investment thesis for Cree, which is based on the company likely seeing lower than historical gross margins resulting from a missed product cycle. Furthermore, based on recent trip to Taiwan last week, firm believes the LED market may be overheating; perceived shortages of wireless handset components may be leading to double ordering.
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