Briefing.com: Stocks struggled to stay above water on Monday as investors found little in terms of actionable news to help drive trading. The Dow (DJI 10579.03 -14.00) slipped 0.13% while the S&P (SPX 1193.81 -2.95) eased 0.26% and the Nasdaq Composite (IXIC 2060.57 -3.44) dipped 0.17%.
Large cap semis weakened but investors continued buying smaller tech names. The Philadelphia Semiconductor Index (SOXX 514.16 -5.25) fell 1.01%. Decliners outnumbered advancers 8.0:1. The broader Briefing.com Tech Index (BTI) edged up 0.5% with advancers leading decliners 1.2:1. Advancers gained 2.9% and decliners lost 2.2%.
Netscreen Technologies (NSCN 35.94 +9.54) jumped 36.1% after Juniper Networks (JNPR 26.18 -3.29, -11.2%) announced it signed an agreement to acquire NSCN in a stock deal. We think the combination is more out of necessity than it is out of strength and leadership as portrayed by JNPR and NSCN management. We would continue to focus on Cisco Systems (CSCO 24.67 -0.07) as the premier name in this space.
Traders tried to put in play other security software / VPN solutions vendors including Check Point (CHKP 23.40, +1.15), Internet Security Systems (ISSX 18.30, +0.70), Symantec (SYMC 40.44 +0.48), SonicWALL (SNWL 9.57 +0.78) and WatchGuard Technologies (WGRD 6.57 -0.18). The forces that drove the JNPR/NSCN combination (Please visit the Story Stocks page for our assessment.) are not specific to the two companies and may help drive consolidation within the security software / VPN space but not necessarily through M&A activity. The collective market capitalization of the companies within the security software / VPN space already far exceed the available market opportunities for these products by several orders of magnitude. We would trade these names with care.
After the close, Linear Technology (LLTC 41.07 -0.33) raised guidance for Q3, Aeroflex (ARXX 15.11 -0.18) and LTX (LTXX 17.15 -0.11) reported Q3 results ahead of consensus and guided Q4 above consensus, and eSpeed (ESPD 24.14 +0.65) and FindWhat.com (FWHT 19.44 +0.0) both lowered guidance despite reporting results ahead of expectations. Please refer to the Industry Briefs section on the Tech Stocks page for details.
LLTC shares are down over 8% since the Q2 preview (Story Stocks, January 12, 2004), when we wrote that management will need to achieve revenue growth and operating margin expansion significantly above the industry average and recent performance for investors to justify owning shares. We continue to think this will be difficult to sustain over the long-term even with market share gains given current end market growth expectations. Shares are still priced at a high premium despite the pull-back. We would wait for an additional 25-30% pullback before initiating a minor position, and consider Analog Devices (ADI 48.09 +0.05) as an alternate play.
Looking ahead to Tuesday, the focus will be on the OPEC meeting. On the earnings calendar, Cognizant Technology Solutions (CTSH 51.95 -1.05) and Perot Systems (PER 13.90 +0.24) report before the open, and Manhattan Associates (MANH 27.55 -0.94) and Sycamore Networks (SCMR 5.40 +0.04) after the close.--Ping Yu, Briefing.com
6:19PM Monday After Hours prices levels vs. 4 pm ET: Tonight's trade has found some buying interest following today's disappointing session for the bulls. After moving modestly higher, the major indices surrendered their gains in the last hour of trading and finished moderately lower. Buyers remained reluctant with Friday's sweeping gains still fresh in their minds.
Presently, the S&P futures, at 1140, are 1 point above fair value, and the Nasdaq 100 futures, at 1496, are 4 points above fair value. Tonight's news has not come from the most influential of companies, but has included a number of earnings revisions. The below table lists tonight's most notable announcements, and the reasons behind the stock's resulting move.
After Hours Mover % Change Move Reason for Move
American Corp (AMR) -3% Major carrier announces a $300 mln convertible notes offering; Stock takes a hit as convertible offerings are eventually dilutive to shares, making EPS targets harder to attain
Bob Evans (BOBE) -3% Restaurant operator and pork product distributor misses the Reuters Research consensus EPS and revenue estimates in its Q3 (Jan) report after first warning for the reporting period on Jan 6; Also says that that FY04 (Apr) EPS should come in below the consensus estimate (of $2.08) at $2.05
J. Jill Group (00C0) +12% Women's specialty retailer beats the Wall Street Q4 (Dec) net income estimate by $0.05 per share and reaffirms its FY04 targets; Traders use the clean earnings report as a sign that J. Jill - which has warned for 3 quarters in the past year - has seen its business stabilize
Linear Tech (LLTC) +2% Large-cap semiconductor name raises its Q3 (Mar) guidance to roughly 10% in sequential top and bottom-line growth; Results in EPS of approximately $0.25 (consensus of $0.25) and revenues of $204.6 mln (consensus of 200.5 mln); Competitors of LLTC include the likes of ADI, MXIM, NSM, and TXN
Playtex Products (PYX) +3% After warning in late Jan that FY03 (Dec) and FY04 EPS would be below Street forecasts due to delayed sunscreen shipments, the manufacturer of consumer products falls short of market expectations in its Q4 (Dec) report; One large buy order sends PYX higher in a recovery effort off its 26% pullback over the past 2 weeks
Tomorrow, the market will have to look beyond earnings and economic reports for its source of direction. There are no economic reports on tap, and only a smattering of earnings from largely non-market-moving companies. The energy shares, however, will likely trade off the outcome of the OPEC meeting tomorrow. For a preview of that, be sure to visit Briefing.com's Looking Ahead column.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
6:05PM Aeroflex beats by a penny, ex items, beats on revs; guides above Q3 consensus (ARXX) 15.11 -0.18: Reports Q2 (Dec) earnings of $0.08 per share, $0.01 better than the Reuters Research consensus of $0.07; revenues rose 2.1% year/year to $105.8 mln vs the $102.3 mln consensus. Co sees Q3 (Mar) EPS of $0.11, Reuters consensus is $0.09
5:02PM Linear Tech increase March quarter guidance (LLTC) 41.07 -0.33: Co announced that the strong demand for its products that the Co discussed in connection with its announcement of its Dec quarter results has accelerated during Q3 (Mar). Consequently, should these current trends continue, the co expects to grow both sales and profits in Q3 apprx 10% sequentially from Q2. This is an increase over the 7% to 8% sequential growth guidance previously given.
4:22PM LTX Corp announces 7 mln shares offering (LTXX) 17.15 -0.11: -- Update --
4:07PM LTX Corp beats by $0.07, guides Q3 above consensus (LTXX) : Reports Q2 (Jan) net loss on GAAP basis of $0.03 per share, $0.07 better than the Reuters Research consensus of ($0.10); revenues rose 116.3% year/year to $58.4 mln vs the $53.7 mln consensus. Co also guides Q3, sees EPS of $0.05-0.08, vs the R.R. consensus of $0.01, and revenues of $67-70 mln, vs an estimate of $62.8 mln.
2:06PM SLAB target range raised to $70-$77 at CE Unterberg 56.91 +5.94: CE Unterberg reiterates their Buy/Buy ratings on Silicon Labs, raises their FY04 rev/EPS ests, and raises their target to $70-$77 from $60; firm says the introduction yesterday of the Si4300 CMOS power amplifier highlights strong R&D at SLAB, giving significant time to mkt advantage over competitors RFMD, SWKS, ANAD, and TQNT.
1:50PM OVTI: Recent pullback unwarranted and overdone 49.80 +0.74: Pacific Growth comments that over the past several weeks there has been enormous pressure on OmniVision's stock. Given the meteoric rise over the past 12 months, some occasional consolidation was to be expected, in firm's opinion. However, believes what has recently occurred is overdone; thinks that OVTI has been hit by a series of unrelated, and frankly irrelevant events. Pac Growth believes OVTI will have very little trouble meeting firm's $76 mln target for the JanQ. Based on the strength firm is seeing in the cameraphone market, guidance is expected to remain robust. If we were to see no growth in 2004, OmniVision would post better than $1.65 in CY:04, based on the run rate of the JanQ. As it stands, firm is projecting CY:04 EPS of $1.91, up from $1.26 in 2003 indicating a PEG ratio of just 0.5x.
12:42PM ICST looks cheap ahead of Intel chipset launch - CIBC 26.55 +0.07: CIBC says that Integrated Circuit Systems looks cheap at a ~20% discount to peers in advance of Intel's launch of its Grantsdale chipset in May; firm says ICST has been pressured by fears of increased competition leading to potential share losses, as well as weak PC motherboard data; yet their checks indicate that ICST did very well this round of designs, remains the incumbent, and could again gain share during this cycle. Maintains Outperform rating and $35 target.
11:46AM SLAB moves to best levels of day; hearing Wachovia upgrading to Outperform from Mkt Perform 57.10 +6.13: See 10:34, 09:33 and 09:02 comments for more color on strength in the stock today.
10:34AM Silicon Labs vacillating near Jan/three month high of 55.45 (SLAB) 55.41 +4.44: -- Update -- -- Technical -- Gaps higher off the open (see 09:02 and 09:33 comments) and in recent action has extended the move near resistance at its Jan/three month at 55.45 (session high 55.41).
10:31AM 50 Day-Alert -- Cisco Systems (CSCO) 25.02 +0.28: -- Technical -- Issues shakes off early weakness (see 09:53 update) with it currently working back toward its 50 day averages (exp 25.09, simple 25.14)-- session high 25.05.
10:19AM Nasdaq Composite paused after gapping higher (COMPX) 2066 +2.70: -- Technical -- The index gapped higher off the open but no follow through developed with the action tightly confined near unchanged and its 20 day exp avg (2068). For this morning, a continued posture above the 2060/2056 leaves the door open for further upticks. Next resistances are at 2077/2080 (recent range floor) and 2083/2085 (50% retrace of Jan/Feb slide, early month high).
Cypress Semi (CY) 21.53 +0.03 : Company raised Q1 outlook, now sees pro forma EPS of $0.18, vs the Reuters Research consensus of $0.17, and revenues of $250 mln, vs an estimate of $243.1 mln. Co attributed improved outlook to continued strength in bookings in first month of Q1, positive momentum in WAN market driven by increased demand for network search engines, and ongoing strength in wireless sales amid ongoing shift to higher-density SRAMs in handset biz.
Micron Technology (MU) 15.90 -0.25 : Micron Technology today announced the availability of two best-in-class VGA DigitalClarity CMOS image sensors for the mobile imaging market - the MT9V011 stand alone VGA image sensor and the MT9V111 VGA system-on-a-chip. These are the first mobile sensors to be internally manufactured in Micron's fabrication facilities using Micron's DRAM processes optimized for image sensors.
Nvidia (NVDA) 22.60 -0.16 : Nvidia (NVDA 22.60 -0.16): While Merrill Lynch expects Nvidia to report in-line Q4 results on Feb 12, they say that Q1 looks tougher; although their model shows rev of $501 mln, what they have heard so far about PC demand in Q1 suggests that graphics processor demand could be down sequentially; firm says they would not be surprised to take $20-$30 mln off their Q1 rev est, which would drop Q1 EPS by $0.01-$0.02. In addition, firm says their checks suggests that NVDA is not making much progress in the notebook or chipset markets, and efforts to diversify away from the PC biz haven't yielded much rev yet either. Maintains Neutral rating.
Pacific Growth commented that over the past several weeks there has been enormous pressure on OmniVision's stock. Given the meteoric rise over the past 12 months, some occasional consolidation was to be expected, in firm's opinion. However, believes what has recently occurred is overdone; thinks that OVTI has been hit by a series of unrelated, and frankly irrelevant events. Pac Growth believes OVTI will have very little trouble meeting firm's $76 mln target for the JanQ. Based on the strength firm is seeing in the cameraphone market, guidance is expected to remain robust. If we were to see no growth in 2004, OmniVision would post better than $1.65 in CY:04, based on the run rate of the JanQ. As it stands, firm is projecting CY:04 EPS of $1.91, up from $1.26 in 2003 indicating a PEG ratio of just 0.5x.
QLogic (QLGC 44.45 -0.71): RW Baird upgraded QLogic to Outperform from Neutral, saying the current stock price reflects more negativity than warranted; while the top-line growth rate of QLGC's business has clearly slowed, firm says the co is well-run and fundamentally solid, and they continue to believe that QLGC's considerable opportunities should lead to growth reaccelerating beginning with the June qtr. Target is $55.
Silicon Labs (SLAB) 57.00 +6.03 : Introduced first Monolithic CMOS Power Amplifier for the GSM/GPRS market. Unterberg believes that Silicon Labs' numbers could go up following the major product announcement from company; thinks 2005 numbers could move up by $0.50 and $50 mln. Firm views this news as a negative primarily for RF Micro Devices (RFMD 9.38 -0.20) as well as Skyworks (SWKS 10.32 -0.23) since both have high market share in the Power Amplifier market.
3:10PM Juniper Networks (JNPR) 27.09 -2.38: Juniper Networks announced this morning that the company has signed an agreement to acquire Netscreen Technologies (NSCN 37.29 +10.89) in a stock deal. The company will exchange 1.404 JNPR shares for each NSCN share.
Management bills the acquisition, expected to close in Q2, as a "combination of two strong companies". We view this as a necessary move because the two companies are playing catch-up to Cisco Systems (CSCO 24.84 +0.10), among other competitors.
Customers, from carriers to enterprises to governments, are demanding secure, reliable solutions that reduce the time, and lower the cost and complexity of implementing/operating a network. This is forcing vendors to deliver integrated solutions that lower the total cost of ownership. In this environment, point solutions vendors, whether hardware or software, are finding it increasingly difficult to differentiate products and defend market position. CSCO early on recognized these customer needs as drivers within the marketplace and made security an integral element of each of its products (Security is one of the six key advanced technologies at CSCO and is the first of the six to achieve a $1B annual revenue run-rate.). It is in this context that we think JNPR and NSCN are finding it increasingly difficult to compete against CSCO. As well, NSCN is in a relatively crowded field, competing with other security software and/or VPN solutions vendors with greater distribution reach, including Symantec (SYMC 40.73 +0.77).
Near-term, the combination does not necessarily translate into an acceleration in combined sales or market share gains given the significant integration risks but, over the long-term, it does bolster the combined company's competitive position and should help expand margins given the cost synergies (Management expects the acquisition to be immediately accretive.).
JNPR shares, after accounting for the combination and today's 10% pull-back, are priced for sustained annual revenue growth in the low 30% range, assuming steady Y/Y improvement to 35-36% operating margin. This is down from the implied 40% revenue growth and 36-38% operating margin rates on January 16, 2004 (Story Stocks, Q4 review). We noted then that JNPR shares were likely to trend higher because of the strong revenue growth and margin expansion opportunities ahead, but we would wait for a 20-25% pull-back before initiating a new position. Today's pull-back reduces the short-term investment risk in this highly volatile name but we would wait for an additional 15-20% pull-back before stepping in.
We think CSCO, with its broad, integrated product portfolio remains the best positioned to meet customer needs. We would continue to accumulate CSCO.--Ping Yu, Briefing.com
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