Here is some conviction of why I am bullish on SUNW!
BEAR, STEARNS & CO. INC.
EQUITY RESEARCH
Computer Week In Preview: June 7, 1999
'Tis The Seasonality; Factory Orders Strong; Virtual Tech99: Email Us
*** 'Tis The Seasonality. Our statistical analysis - as documented in the chart and table below - gives evidence of a clear seasonality in tech stocks that we have commented on before: technology stocks are generally weak on an absolute and relative basis in June (often starting in May) and then tend to outperform (usually starting in late June) from July through January. What does this mean? We think that corrections in tech stocks, like that we have seen recently in shares of Dell, EMC and Sun Microsystems, tend to be followed by a rally in these stocks and would encourage investors to pick an entry point now in anticipation of what may be a typical seasonal rebound. As explained below, our analysis is based on the stock price performance over the past nine years (excluding 1995 for the reasons given below) of technology stocks as measured by the Amex Computer Index (XCI) an index of 26 leading technology stocks including Apple, Applied Material, ADP, Cisco, Compaq, Dell, EMC, H-P, Intel, IBM, Microsoft, Oracle, Sun Microsystems, Texas Instruments and others) on an absolute basis as well as against the S&P 500.
Performance of the Amex Computer Index Vs. The S&P 500
Stock Price Performance from January 1991 through May 1999*
* 1995 was excluded because the seasonal patterns were affected by Windows95 anticipation and disappointment.
Below is the data in table format (for those that cannot retrieve/see the graph).
Monthly Performance: Amex Computer Index, S&P500 (1991-99, excluding 1995)
%Ch Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
XCI +9.77 +1.17 -1.48 +2.01 +2.74 -1.86 +3.56 -0.36 +4.52 +1.00 +4.84 +1.48
SPX +2.58 +1.35 +0.34 +1.67 +1.40 -0.09 +1.87 -1.67 +1.75 +1.80 +1.59 +2.78
Diff* +7.20 -0.18 -1.82 +0.34 +1.34 -1.77 +1.69 +1.31 +2.77 -0.80 +3.25 -1.30
* XCI minus S&P500 - a positive number implies outperformance by technology index and vice versa
Here are the conclusions which we draw from the data:
· Absolut Tech Stocks. On an absolute basis, technology stocks have performed best from July through January but have performed worst during March, June and August that are months often associated with earnings pre-announcements or fears of pre-announcements.
· Relatively Speaking. On a relative basis, technology stocks have underperformed the market in March, June and December for the reasons noted above, and in October perhaps owing to that month's historical volatility. However, as noted above, we think that after a lackluster or down spring, technology stocks tend to bottom in late June and then start a strong upward move from July through January.
· Y2K Impact. As noted, we excluded 1995 from the analysis because of the aberrant impact of Windows95 that year. Y2K could have a similar impact this year thus leading to non-typical results. This is possible but, as we have discussed previously, we believe that the impact of Y2K on stocks should peak around now owing to the maximum uncertainty but that any impact should diminish over the course of the year as visibility increases. As an aside, we would note that Y2K seems to be the dominant concern with investors at this point, but we think it is a "time capsule" issue, i.e., one that goes away with time and thus reduces its impact on stock prices.
· Bottom Line. Our perspective remains the same: You probably want to pick your entry points in anticipation of this move.
· Methodology: Our conclusions are based on an analysis of technology stock price performance, as measured by the Amex Computer Index (XCI) (an index of 26 major technology stocks), on an absolute and relative (to the S&P 500) basis. Our analysis reflects stock prices based on month-end prices from 1991 through the present - although we excluded 1995 from this analysis because it was an aberrant (i.e., non-typical) year owing to the impact of Windows95 (where stocks performed well until August and sold off through the balance of the year). If we had included 1995, the trends are essentially the same but we excluded it to reflect the general seasonal pattern. (Special thanks to Wing Chow for statistical assistance.)
*** Factory Orders Strong. As indicated by last week's Durable Goods report, Factory Orders for computers (released on June 3, 1999) for the month of April, by the Commerce Department, rose 2.3% in April following a stronger than previously though 4.0% increase in March (upwardly revised from 2.2% originally). While the 12-month growth in computer orders, at 8.6%, is still below the double-digit gains posted through much of last year, it is higher than the March 12-month change of 4.9%. Furthermore, the March three-month growth rate for computer orders, at 25.1%, suggests the sector is gaining momentum. We would note that these numbers basically match what we heard from companies about the continuation of solid first quarter demand. We focus on these government statistics to get a measure of industry demand and because we believe that there is some reinforcement to our views on with computer stock prices, although not necessarily an absolute correlation.
*** Virtual Tech99 Next Week: Email Us Your Questions . We want to remind you to save the date for our "Virtual Computer Conference, which takes place on Monday, June 14. We also want to get you to start thinking about what questions you want answered.
· What is a virtual conference? It is a series of telephone conference calls supported by slides on the Internet. Our agenda consists of a one-hour panel of CIOs - Fedex, NASDAQ, Sprint Telecom, VF Corporation (12:00 noon ET), followed by four 45-minute keynotes: Michael Dell, CEO, Dell Computer (1:30 pm ET), Scott McNealy, CEO, Sun Microsystems (2:30 pm ET); Lew Platt, CEO, Hewlett-Packard (3:30 pm ET) and Mike Ruettgers, CEO, EMC Corporation (4:30 pm ET).
· Why do a virtual conference? For several reasons. First, we prefer to get the CEO's perspective, which is more achievable this way. Second, we find it is helpful to hear multiple perspectives serially as opposed to over the course of several days. Third, investors can participate regardless of where in the world they are. Fourth, and most important, we know that the Internet changes everything including conferences, so we want to figure out the best way to do a conference virtually.
· How do you get questions answered? While we expect to have some time for Q&A during the keynotes, please feel free to send us your questions in advance to aneff@bear.com.
· How can you get more details? You can get more details from your salesperson or on our website at bearstearns.com.
*** This report is a summary of some of the major company and industry events that could have an impact on computer stocks -- PCs, enterprise-wide systems, disk drives, and computer-related semiconductors -- over the next week and beyond -- along with our commentary. This report is available via email. Please send your request to John Timberlake at jtimberlake@bear.com or call (404) 842-4052.
This Week (And Beyond) In Preview
Monday, June 7
· TECD 1Q2000 EPS $0.54 vs. $0.46; First Call at $0.52; the stock is followed at Bear Stearns by John Ford. For additional information, please contact Investor Relations at 800-237-8931.
Thursday, June 10
· LXK 2-for-1 stock split.
Week of June 14
· CC 1Q00 EPS $0.20 vs. $0.30 (First Call consensus); not currently followed by Bear Stearns. For additional information, please contact Investor Relations at 804-527-4000.
Monday, June 14
· MICA 2Q99 EPS $0.04 vs. ($0.10) (First Call consensus); reports after the close, conference call following morning; not currently followed by Bear Stearns. For additional information, please contact Investor Relations at 602-366-2471.
Monday, June 14/Thursday, June 17
· BSC 10th Annual Technology Conference, NYC. For more information, contact your salesperson, call the Bear Stearns Conference Line at 212-272-9386 or email tech99@bear.com.
· Monday, June 14: Bear Stearns "Virtual Computer Conference," featuring a panel of CIOs: FDX Corp. (parent of Fedex), NASDAQ, Sprint Communications, and VF Corporation followed by keynotes from Michael Dell, CEO, Dell Computer; Scott McNealy, CEO, Sun Microsystems; Lew Platt, CEO, Hewlett-Packard; Mike Ruettgers, CEO, EMC Corporation. Presentations will be via conference call and Internet slides.
· Tuesday, June 15: Bear Stearns Technology Conference: Internet, NYC
· Wednesday, June 16: Bear Stearns Technology Conference, Computer Services, NYC
· Thursday, June 17: Bear Stearns Technology Conference, Software, Contract Manufacturing, NYC.
Tuesday, June 15
· BBY 1Q00 EPS $0.12 vs. $0.08; First Call at $0.52; the stock is not followed by Bear Stearns. For additional information, please contact Investor Relations at 612-947-2621.
Monday, June 21
· MUEI 3Q99 EPS $0.05 vs. $0.06; First Call at $0.08; our revenue forecast is $353.8 million vs. $340.8 million a year ago. For additional information, please contact Investor Relations at 208-898-3900.
Tuesday, July 13
· INTC 2Q99 EPS $0.52 vs. $0.33; First Call at $0.54; our revenue forecast is $6.82 billion vs. $5.93 billion a year ago. For additional information, please contact Investor Relations at 408-765-1910.
· SUNW 4Q99 EPS $0.46 vs. $0.36; First Call at $0.46; our revenue forecast is $3.4 billion vs. $2.9 billion a year ago. For additional information, please contact Investor Relations at 650-336-0761.
Wednesday, July 14
· AAPL 3Q99 EPS $0.63 vs. $0.50; First Call at $0.63; our revenue forecast is $1.64 billion vs. $1.40 billion a year ago. For additional information, please contact Investor Relations at 408-974-3123.
· CMNT 2Q99 EPS $0.10 vs. $0.04; First Call at $0.11; our revenue forecast is $39 million vs. $33 million a year ago. For additional information, please contact Investor Relations at 612-797-6111.
Thursday, July 15
· ODP 2Q99 EPS $0.21 vs. $0.17 (First Call consensus); not currently followed by Bear Stearns. For additional information, please contact Investor Relations at 561-438-1680.
Friday, July 16
· DELL Annual shareholders meeting.
Upcoming Events
Week of July 19
· IBM 2Q99 EPS $0.87 vs. $0.75; First Call at $0.88 (all figures are post-split); our revenue forecast is $21.4 billion vs. $18.8 billion a year ago. For additional information, please contact Investor Relations at 914-499-4531.
· CMPC 2Q99 EPS $0.05 vs. ($0.09) (First Call consensus); not currently followed by Bear Stearns. For additional information, please contact Investor Relations at 972-856-4359.
Monday, July 19
· LXK 2Q99 EPS $0.51 vs. $0.37; First Call at $0.49 (all figures are post-split); our revenue forecast is $818.5 million vs. $697.3 million a year ago. For additional information, please contact Investor Relations at 606-232-5934.
Wednesday, July 21/Friday, July 23
· AAPL Macworldexpo, NYC. We are expecting iCEO Steve Jobs to introduce the consumer/ education portable at this point. For additional information, contact the website for the tradeshow at macworldexpo.com.
Wednesday, July 21
· SGI 4Q99 EPS ($0.04) vs. ($0.31); First Call at ($0.05); our revenue forecast is $737.1 million vs. $773.6 million a year ago. For additional information, please contact Investor Relations at 650-933-2686.
Thursday, July 22
· ADPT 1Q00 EPS $0.38 vs. $0.10; First Call at $0.38; our revenue forecast is $185 million vs. $181 million a year ago. For additional information, please contact Investor Relations at 408-957-2505.
· GTW 2Q99 EPS $0.55 vs. $0.38; First Call at $0.55; our revenue forecast is $2.0 billion vs. $16.0 billion a year ago. For additional information, please contact Investor Relations at 605-232-2709.
Tuesday, July 27
· ICO 2Q99 EPS $0.15 vs. $0.62 (First Call consensus); not currently followed by Bear Stearns. For additional information, please contact Investor Relations at 402-758-3281.
Wednesday, July 28
· IM 2Q99 EPS $0.05 vs. ($0.09) (First Call consensus); not currently followed by Bear Stearns. For additional information, please contact Investor Relations at 714-382-2015.*
Monday, August 2
· IBM and pervasive computing will be the subject of our "Focus On The Future" call this month. Details tba. *
Monday, August 16
· HWP 3Q99 EPS $0.78 vs. $0.58; First Call at $0.79; our revenue forecast is $12.1 billion vs. $11.0 billion a year ago. For additional information, please contact Investor Relations at 650-857-2644.
Tuesday, August 17
· DELL 2Q2000 EPS $0.17 vs. $0.12; First Call at $0.17; our revenue forecast is $5.9 billion vs. $4.3 billion a year ago. For additional information, please contact Investor Relations at 512-728-8315.
All times are ET unless noted. * Updated or new since the last Computer WIP
† Bear, Stearns & Co. Inc. is associated with the specialist in the stock or option of this company.
Companies Mentioned: Adaptec, Advanced Micro Devices, American Online, Apple Computer, Best Buy, CHS Electronics, Circuit City, Compaq Computer, CompuCom Systems, CompUSA, Dell Computer, Gateway, Hewlett-Packard, HMT Technology, Hutchison Technology, IBM, Inacom, Ingram Micro, Intel, Komag, Lexmark, Maxtor, Microsoft, Micron Electronics, Merisel, MicroAge, Micron Technology, Network Appliance, Office Depot, NEC, Quantum, Read-Rite, SCI Systems, Seagate Technology, Silicon Graphics, Sony, Sun Microsystems, TechData, Toshiba, VanStar, Veritas, Western Digital
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