Here is some one finally speaking my sentiments!
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General Commentary
It took a while but market finally came to the conclusion that slowing earnings growth at
Intel, Motorola and Compaq isn't good news... No one ever said you had to be a rocket
scientist to trade stocks... Despite late sell-off which brought tech-laden Nasdaq down
more than 28 points, Briefing maintains that techs still doing better than they should be
given the depth of earnings trouble and the ongoing crisis in Asia... Equally troubling is the
break down exhibited by tech leaders such as Compaq, Intel and Sun Microsystems...
Jan-Feb rally was driven by the large-cap industry leaders... As these stocks roll over,
bearish momentum will build and the rest of the tech sector will follow along for the ride -
even the Internet stocks... As noted on this page yesterday, we expected Internet stocks
to outperform rest of tech sector given lack of exposure to Asia and benefits from move to
sub-$1000 PCs... They did tremendously Monday, as investors poured money into the
group... But sooner or later, reality must set in and these high-flyers will come back to
earth... It's one thing not to have exposure to Asia, it's another to sell at 8400x estimated
FY99 earnings as does Amazon.com.
Industry Briefs
Computer Systems & Peripherals | Networking | Software | Semiconductor | Chip Equipment | Telecom Equipment
Computer Systems & Peripherals
Brief: Compaq triggered a widespread sell-off in the group, as investors fear the
beginning of a nasty price war... Of particular concern is that price war will extend into
higher margin products such as servers... Sun Micro, Hewlett-Packard, Dell, IBM all
followed CPQ sharply lower... Waning momentum points to additional declines... Next
support levels for the five stocks highlighted above are at 35, 57 3/4, 56 5/8, 88 5/8 and
21, respectively... Estimates for PC growth finally coming down, as one firm lowered its
growth estimate to 12% from 15%-17% range... Dell and Compaq downgraded by a
number of firms after CPQ warning... For details, see Briefing's Upgrades/Downgrades
page... Disk drive group down in sympathy with box-builders... News that Bear Stearns
downgraded Quantum (-1 9/16) didn't help either... This entire group will remain on
defensive over near-term... Use corrective gains to unload lighten exposure.
Computer Networking
Brief: Networkers caught up in tech sell-off, with Cisco tumbling more than 3 points...
While other leadership stocks getting hit, CSCO still close to all-time highs... Nevertheless,
stock and group will suffer from deteriorating tone in PC and chip industries... Legg
Mason reiterated buy rating on Vanstar (-7/16).
Computer Software & Services
Brief: Internet stocks ruled, with AOL up 1 7/8, Yahoo up 7 1/4, Seek ahead 2 1/32
and Excite up 5 1/16... Companies viewed as safe haven in these uncertain times... But in
this case safety carries a very high price tag... End result, what is being viewed as safe
today likely to be viewed as excessively valued in the not to distant future... More
traditional software firms such as Microsoft, PeopleSoft, BMC Software and Oracle all
took a beating... Though group will fall in sympathy with rest of techs, declines won't be as
severe given more stable earnings climate... Dips will provide decent long-term buying
opportunities.
Semiconductor:
Brief: So much for Friday's optimism... Cypress group's most recent earnings casualty,
as company warned that it will miss current quarter estimates... Company expects to post
loss of $0.06-$0.08 compared to street estimate of break even... News triggered renewed
declines with Intel, Texas Instruments, Micron, Lattice, Linear Technology and
Advanced Micro pacing the retreat... Cypress shed 3/16... Jackson Partners
downgraded Motorola to hold from buy... Altera bucked the trend and rose 7/16 in
response to Morgan Stanley upgraded (neutral to outperform).... Slowdown in PC
industry, lingering Asian concerns, slew of earnings warnings and deteriorating momentum
suggest that chip industry is in for a rough couple of weeks.
Semiconductor Equipment
Brief: We warned that group would get hit by profit-taking in light of Compaq news and it
did... ETEC Systems (-3 7/8), Applied Materials (-1 17/32), Novellus (-1 9/16) and
Teradyne (-1 15/16) absorbed the brunt of the selling... Kulicke & Soffa won contract
worth nearly $6 mln from Integrated Device Technology... Given their earnings instability
and exposure to Asia, there is plenty of downside room left - especially considering how
far these stocks climbed off their respective Dec/Jan lows.
Telecommunications Equipment
Brief: Group held up well in face of sell-off... Only Tellabs and ADC Telecom posted
losses of more than one point... Meanwhile, PairGain, Scientific-Atlanta, Advanced
Fibre, Andrew, At Home and DSC Communications posted modest gains... Lucent
slipped 1/2 despite introducing revolutionary network bandwidth management system that
is expected to save communications carriers up to 60% in equipment costs... Briefing sees
paradigm shift in tech sector away from faster microprocessors toward higher bandwidth
to result in continued strong relative performance.
[ Index ]
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