<Picture>Tech Stock Analysis
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Updated for: March 2, 1998
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General Commentary
That shot heard around the world was Dell shareholders popping champagne corks... Stock rallied another 6 5/8 points to yet another all-time high following news that Lehman Bros. had raised its price target from $135 to $150... In general, though, the tech sector failed to respond to Dell's big move, trading in mixed fashion for most of Friday's session as investors did some expected profit taking... Chip and chip equipment makers were the focus of most of those profit taking efforts after an earnings warning from VLSI Technology and some cautious comments from Applied Materials' CFO who expects flat to slightly lower capital spending in 1998 on semiconductor manufacturing equipment... Many of the internet stocks remained red hot, helping to stem Friday's declines... Of the most actively traded stocks on Friday, the top fifteen were all technology stocks.
Though momentum remains the primary force driving the tech sector, this week's slew of economic data will be hard to ignore, especially with long-bond yield near the upper end of its recent trading range... If NAPM, New Home Sales, LEI, Factory Orders and Unemployment paint picture of still strong economy, long-bond yield will push back above 6.0%... Not a big deal in the big picture, but rising rates likely to cause at least a minor pause in the market rally... As for earnings, there's not much on the calendar this week... We are now entering the early stages of warnings season (note Friday's news out of VLSI, Hutchinson and Applied Materials)... Just another reason to look for some profit-taking this week... That said, a week of backing and filling will do the market good in that it will relieve the overbought short-term technical tone and leave the market poised to extend the current rally.
For a complete list of companies reporting earnings see Briefing's Tech Earnings Calendar.
Industry Briefs
Computer Systems & Peripherals | Networking | Software | Semiconductor | Chip Equipment | Telecom Equipment
Computer Systems & Peripherals
Brief: There were two stand outs among the PC makers-- Dell and Hewlett-Packard... The reason for the former's stellar performance was already alluded to above... As for HWP, it rallied two points following an upgrade to NT Accumulate from NT Neutral by Merrill Lynch... Brokerage firm cited "accelerating earnings momentum" among its reasons, and also raised its price target to $75... Rest of the group stumbled... IBM dropped 1 1/16 and announced it had entered into a microprocessor foundry agreement with Advanced Micro Devices... Compaq dropped another 13/16... Investors probably promptly moved their profits into Dell stock... Apple Computer bucked the trend, adding an 1/8, and said it would discontinue production of its Newton handheld unit... Morgan Stanley started Silicon Graphics with a Neutral rating, and began Sun Microsystems with a Strong Buy rating... Latter was good for all of a 5/8 of a point gain in shares of SUNW... Disk drive group languished after some disappointing news from Hutchinson Technology... HTCH reported that it had lost $0.56 a share in the first two months of the quarter... A rather lousy performance considering street expects a loss of $0.57 for the entire quarter... Stock ended the day down 1 1/8... Quantum the other big loser, falling 1 3/16.
Computer Networking
Brief: More new coverage on the networkers... This time, from Deutsche Morgan Grenfell which started Bay Networks, Cisco, and 3Com with Buy ratings and re-started coverage of Cabletron Systems with a Hold... Stocks outperformed earlier in Friday's session, but closed off of their highs of the day... Cisco, in fact, ended down 5/8 while COMS, BAY, and CS finished with just fractional gains... Newbridge Networks and Shiva gained 1 5/8 and 1 1/16 respectively.
Computer Software & Services
Brief: Internet stocks again showed some good momentum with Yahoo! racing to a 5 1/16 point gain... Noticeably absent from the rally was America Online which fell 2 3/8... Computer Associates jumped 1 3/8 and was reiterated a Strong Buy at Cowen & Co... In addition, First Asset Management initiated coverage with a Buy rating and a 6-month price target of $55 a share... Computer Sciences shot up 2 3/16... Novell gained 33/64 and was the most actively traded stock today with 22.5 mln shares changing hands... BEA Systems added 1 1/2 after reporting Q4 earnings of $0.07 a share, two cents ahead of estimates... Broderbund and BMC Software brought up the rear, falling 1 3/8 and 2 3/4 respectively.
Semiconductor:
Brief: Story of the day yesterday was report that Advanced Micro Devices was in early stages of talks with IBM to co-produce a K6 chip... Neither company would confirm the rumor, but AMD rode the talk to an impressive gain of 3 3/8... On Friday, investors sold the fact as companies entered into a microprocessor foundry agreement... New deal though didn't help assuage concerns over competitive pressure from Intel... If it was any consolation to AMD shareholders, Intel fell 2 5/8... Chip makers were the beleaguered ones on Friday, confronted by an earnings warning from VLSI Technology, and a Cowen & Co. downgrade of Motorola to Neutral from Buy amid concern over slowing demand for cellular phone chips... Cowen also cut '98 earnings estimates from $3.10 to $2.60 and '99 est. from $3.40 to $2.80... Renewed concern over Asia's impact on earnings growth triggered a sector-wide selloff... Texas Instruments dropped 3 1/2 while Micron, Analog Devices, Altera, Linear Tech and Lattice Semiconductor all ended more than a point lower... However, VLSI Technology led the losses, losing 5 7/16... VLSI was downgraded by Deutsche Morgan Grenfell from Buy to Hold, but did see BA Robertson Stephens up its rating from LT attractive to Buy.
Semiconductor Equipment
Brief: Chip equipment makers struggled through Friday's session, weighed down by weakness in the chip sector and AMAT's cautious outlook for capital spending on semiconductor manufacturing equipment in 1998... Only real news in the group was a Josephthal Lyon downgrade of AMAT from Buy to Hold... ETEC, AMAT, LRCX, NVLS, and KLAC ended down more than a point.
Telecommunications Equipment
Brief: Not much going on with the telecom equipment makers... Most ended fractionally lower after helping to lead Thursday's rally... Lucent planning to inaugurate its first cellular telephone plant in Brazil on Tuesday... It was also reported that Lucent and Aspect Telecommunications have agreed to dismiss their patent lawsuits against each other... Advanced Fibre Communications led the modest pullback with a 1 point loss.
[ Index ]
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