Piper Jaffray's Kumar Is Unpopular, Accurate: Bloomberg Profile
Piper Jaffray's Kumar Is Unpopular, Accurate: Bloomberg Profile
Minneapolis, Jan. 12 (Bloomberg) -- Two days before Dell Computer Corp. reported third-earnings, Piper Jaffray Inc. analyst Ashok Kumar said sales may be slowing at the No. 2 personal computer maker and that the stock could fall.
This was heresy to many investors and analysts who follow the company, which has been the best-performing stock in the Standard & Poor 500 Index three years running. On Nov. 12, Dell reported earnings that beat estimates by a penny, but sales that fell short of expectations. The stock dropped 7.6 percent.
Kumar has made something of a name for himself with unpopular but accurate calls, using his background in computer chip design and marketing to unearth information about inventories, orders or manufacturing problems at the computer and chip companies he covers. In the case of Dell, it was the company's employees and customers who helped him figure out that sales were slowing. ''He's very plugged in,'' said portfolio manager Graham Tanaka of Tanaka Capital, who talks with Kumar about stocks he owns, including Dell and Intel Corp. ''He's been very accurate.''
Being accurate can be lonely. Kumar has been kicked off conference calls by executives or barred from asking questions. Some companies have even said that they would fire employees who gave him information. ''I am not paid to sit on the fence,'' said the 34-year-old analyst.
Kumar and Kurlak
Kumar has been right with his calls in the past year, while some veterans have missed.
Analyst Tom Kurlak of Merrill Lynch & Co., for example, in April said that Intel shares could drop to 60 because strong sales of cheap personal computers would hurt earnings.
He was almost right however briefly, and within two months Intel had dropped to 65. It was all uphill from there. On Dec. 23, Kurlak -- who did not return telephone calls -- changed his mind and said Intel shares, then at 125, could rise to 144. The shares recently traded at about 140.
By comparison, Kumar said in late August that Intel's third- quarter results could be higher than the forecasts of many of his counterparts. Kumar had talked to PC makers about demand and checked with dealers and distributors about sales and inventory.
He did some nail biting in the following days, as other analysts challenged his opinions and Intel stock fell from 83 to about 71.
Two weeks later, Intel said third-quarter sales would beat forecasts, lifting the stock 7.4 percent the next day. ''You have to make a judgment call and go with your gut,'' Kumar said. ''It doesn't take much to have a consensus opinion because, if you are wrong, everybody is in the same boat.''
Designing Chips
Kumar may have a keener understanding of the companies he covers than some of his rivals. An engineer by training, he worked for Intel for three years after getting his MBA from the University of Pennsylvania's Wharton School of Business in 1991.
A native of Madras, India, Kumar and his wife, Maya, a lawyer, came to the U.S. when he was 22 and enrolling at Purdue University to get his master's in electrical engineering. After graduating in 1985, Kumar designed chips at defense contractor General Dynamics Corp.
Kumar has been an analyst for four years, first at Prudential Securities in San Francisco, then at SouthCoast Capital in Austin, Texas. In March, he joined Piper in Minneapolis. He says his background gives him an edge. ''You are on the same level with engineers,'' he said. ''They can't pull the wool over your eyes.''
AMD's Plunge
His technical training helped him when he was checking Advanced Micro Devices Inc.'s forecasts for sales and earnings earlier this year. AMD, which makes chips that compete with Intel, was optimistic that its Austin, Texas, plant would be churning out chips at a fast clip and give a lift to sales.
Kumar, however, thought that the yields, or number of usable chips on an eight-inch wafer, were lower than AMD expected. He also foresaw problems with the product designs. On April 28, he cut AMD to ''neutral'' from ''buy'' when the stock was at 28 1/6.
In July, AMD reported a wider-than-expected loss in the second quarter as it had to slash prices on its products to compete with Intel. It turned out that AMD's costs also were too high because of the low yields. Several analysts subsequently cut their ratings on the stock.
By August, AMD shares had dropped more than 50 percent to a low of 13. The stock trades now trades as about 32, after getting a lift from PC makers that are using AMD's cheap chips instead of costlier ones from Intel Corp.
Investment Banking Pressure
Kumar may have an easier time making unpopular forecasts because he doesn't feel some of the pressures of his rivals.
Piper, a regional firm, has a much smaller investment banking business than many big New York brokerages. Many investment firms make most of their profits managing stock and bond sales, and advising on mergers and acquisitions.
The official industry position is that there is a barrier between investment bankers and research analysts. Yet, some analysts are reluctant to antagonize a company that gives business to their employer. ''It's hard to call it like you see it,'' said Marvin Roffman, who was fired from Janney Montgomery Scott in 1990 after making negative comments about Donald Trump's new Taj Mahal casino in Atlantic City, New Jersey. ''You don't want to offend a potential corporate client.''
Trump's casinos subsequently filed for bankruptcy protection after defaulting on some of its debt.
While many investors appreciate the debate that Kumar's opinions generate, veterans like Kurlak still command plenty of attention. ''They are both helpful to us. The dialog is valuable,'' said portfolio manager Tanaka.
For Kumar, provoking dialog is part of the job. ''At the very least,'' he said, ''I can stimulate a discussion.''
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