To: Johnny Canuck who wrote (22029 ) 7/13/1999 3:53:00 PM From: Johnny Canuck Respond to
13-Jul-99 10:13:03 Vitesse Semiconductor is getting hit hard today despite the fact that the firm's 2Q earnings beat the Street's expectations by a penny. Vitesse reported 2Q earnings of $0.24, up from $0.18 in the year-ago quarter. While the firm's earnings revenues attributable to Lucent were slightly below expectations, the firm's gigabit ethernet and fiber channel units were unusually strong. The sell-side has reacted positively to the news by issuing a plethora of upbeat reports. The better-than-expected earnings and strong support from the sell-side leads to the question: Who is pushing the stock 4 7/8 lower to $66 7/8 and why? Well, the stock ran up considerably over the past few weeks, gaining 31% since early June, most likely in anticipation of a blow-out quarter and strong sales to Lucent. So, today's decline is a reaction to those built up expectations. But investors appear to be recognizing that this morning's reaction was a bit overdone; Vitesse has recovered 3 points from its intra-day low of $63 7/8. A break-down of today's trading data revealed that institutional investors are active in the stock today, accounting for over 40% of all volume. The most likely institutional seller behind today's decline is going to be the momentum/aggressive growth type investors who focuses on earnings and price momentum. These firm's often quickly accumulate and liquidate multi-million share positions without regard to the affect on the stock's price. Momentum-type institutions focus on near-term earnings momentum and reports that Vitesse will continue to have flat sales to Lucent may have been enough to touch off a selling spree among these investors. On the bid-side, there will be growth-type institutions who are encouraged by the sell-side reports offering a rosy 12-month plus scenario for the firm. These two types investors account for the tug of war evident on Thomson I-Watch between bidders and sellers.
