The next two posts are from Briefing I think many here will find interesting. Sometime I disagree with Briefing since at times I think they focus too much on the fundamentals in their day to day coverage of the market and specific stocks. They also have underestimated the impact of a huge and continuing inflow of money back into the market. However, IMO what they have to say is always worth listening to. Oh, and do not tell anyone I have republished some of their material. ;)
Here is their comments about recent market action in the tech sector:
Updated for: March 18, 1998
Please note: Briefing.com is provided as an information service only. Charter Media, Inc. and Briefing.com do not make specific trading recommendations or provide individualized investment advice. Readers should make investment decisions based on thorough research and their own investment criteria. See Disclaimer.
General Commentary
When we turned short-term bullish on the tech sector back in early January it was because the leadership stocks were finally showing signs of life... At that time we noted that traders had about a 6-wk window of opportunity to buy techs... After which, we expected earnings warnings and renewed concern over the long-term impact of the Asian crisis to close the window for quite some time... While the earnings warnings have come, the sell-off hasn't - at least not yet... But just as the leadership stocks sent an early buying signal, they are beginning to flash warning signs... Compaq, Intel and Applied Materials have broken down technically... While Dell, Microsoft, Lucent and Cisco remain in good shape, only Lucent has exhibited strong upward momentum over past couple weeks... If the latter group begins to roll over, the bottom will finally fall out of the tech sector.
SpeedFam is due to report earnings after today's close... Street looking for a gain of $0.40... For complete earnings info, see Briefing's Earnings Calendar.
Industry Briefs
Computer Systems & Peripherals | Networking | Software | Semiconductor | Chip Equipment | Telecom Equipment
Computer Systems & Peripherals
Brief: So giving away products for free because of excess inventory isn't such a good thing after all... Shares of Compaq took it on the chin in a delayed reaction to news that company will give away its monitors to business clients in effort to work down inventory ... Stock broke through pivotal support at 25, and looks poised for a test of the 22-20 range over the intermediate-term... Rest of the PC group followed CPQ's lead... Steve Jobs lived up to expectations and introduced G3 PowerMac with a 400-megahertz, IBM processor... With a flat screen, resale to start at $1,999... Jobs noted that company has brought prices way down and that future product roll outs will be priced aggressively... Apple slipped 11/16 on a sell on the fact reaction... Iomega's rebound of 1/4 was unimpressive... Points to further downside activity over the next few days... Micron Electronics shed 5/8 after reporting weaker than expected earnings on soft revenues... After the close Jabil Circuits announced earnings of $0.52, one cent above estimates... Bad news is company noted that it expects lower operating income over the next two quarters due to slowing demand... Stock was down nearly 2 points in after hours trading.
Computer Networking
Brief: We suspected it last week and Bay Networks didn't disappoint us... After Tuesday's close, BAY warned that Q3 revenues would fall 105 shy of previous quarter due to weaker than expected demand for newest generation switching products... Earnings and margins also to be adversely impacted by pricing pressures... Street had been expecting earnings of $0.28... Look for those numbers to come down to $0.21-$0.20 area... Prior to today's announcement, SoundView cut its Q3 estimate to $0.25 from $0.30 and cut its FY98 and FY99 estimates to $1.03 and $1.40 from $1.14 and $1.65... Meanwhile CIBC Oppenheimer cut its rating to hold from buy... Stock is down 2 11/16 in after hours trading... Ascend also took a beating, falling 1 7/32... No news... Air simply being let out of the takeover balloon.
Computer Software & Services
Brief: Profit-taking weighed on the group Tuesday, with Microsoft, Yahoo!, BMC and Computer Associates pacing the retreat... Given group's dramatic gains year-to-date and the slowly deteriorating tone in techs, look for the software group to remain on the defensive over the short- to intermediate-term... Would be reducing exposure to relational database companies such as Oracle and Informix given recent gains and still clouded earnings outlook... Overall, however, we expect the software industry to continue outperforming the tech sector given greater earnings visibility and relative price stability.
Semiconductor:
Brief: Briefing has long held that tech sector is experiencing a paradigm shift away from processor speed and toward increased bandwidth - bad news for companies like Intel (at least for the next few quarters)... Merrill voiced similar concerns Tuesday when it again talked down the prospects for the chip sector... Notable exceptions were Texas Instruments (+1 1/4) and VLSI (+7/16), two companies Merrill believes are ahead of the curve in producing products for telecom market... Big losers included Altera (-1 1/8), Lattice (-1 3/16), Linear (-1 1/4) and Micron (-1 3/4)... Latter company reacting to weaker than expected earnings report... Gruntal maintained its hold rating on MU noting that it would hold off buying until DRAM prices stabilize, or until the Cubs win the World Series whichever comes first (Cub clause added by Briefing)
Semiconductor Equipment
Brief: More bad earnings news for the chip equipment sector... Brooks Automation indicated that Q2 results will fall well below street estimates... CFM Technologies announced that it will slash its workforce by 19% due to soft industry conditions... Add these developments to the bearish outlook in the chip sector and it was no surprise that the industry sold off sharply on Tuesday... Novellus, Applied Materials and KLA-Tencor led the pullback... ETEC bucked the trend and gained 13/16 on news that it was shipping its first production laser direct imaging system for the printed circuit board fabrication industry... Earnings outlook for this group remains way to clouded for our liking... As such we advise using any near-term gains to reduce exposure.
Telecommunications Equipment
Brief: Telecom equipment industry continued to exhibit impressive relative strength, with Advanced Fibre, ADC Telecom, Lucent and Tellabs posting gains of more than one point... Ciena jumped another 7/8 on news that H&Q started with a buy... Indirectly bolstered by Merrill comments... Rumors of industry consolidation also underpinning the group... As noted here yesterday, we love the group's long-term outlook but overbought short-term indicators suggest that telecom stocks are in for a brief period of backing and filling. |
