Hi K,
Yep, out of CPQ. I will be back in though. Just got tired of watching
other investments slip by. I'll watch it closely...
Here is weekly repost I get f.y.i.
WEEKLY INDEX OF PC HARDWARE, PC CHANNEL, AND DATA STORAGE STOCKS
08:17am EDT 11-Oct-99 Prudential Securities (K.ALEXY) AAPL CC DELL
WEEKLY INDEX OF PC HARDWARE, PC CHANNEL, AND DATA STORAGE STOCKS
R E S E A R C H N O T E S October 11, 1999
Subject: PC HARDWARE INDUSTRIES
PC INDUSTRY OPINION
=====================
Current: Strong Buy
Analysts: Kimberly Alexy Andrew Saland RISK: High
========================================================================
o The PC Hardware Composite gained 4.5% for the week (0.5% YTD) vs. a 4.1% WTD
gain (+8.7% YTD) for the S&P 500. Tech stocks rallied for the most part as
initial concerns regarding supply problems stemming from the Taiwan quake have
been allayed to an extent.
o The PC Channel Composite declined 4.5% last week (-48.6% YTD) led by declines
in shares of InaCom, Compucom and MicroAge.
o The Disk Drive Composite lost 3.8% WTD (-14.3% YTD).
o Upcoming events for the week: Intel Corp. and Seagate Technology will both
report earnings on 10/12, Apple Computer will report earnings 10/13, and Quantum
HDD, Quantum DSS, Sun Microsystems, Iomega and Office Depot will all report
results 10/14.
o We believe that investor concerns over supply chain disruptions to major PC
vendors have been calmed somewhat after comments made by some Tier-1 vendors,
who continue to see strong demand trends in the PC sector, positioning shares of
these companies to enjoy a strong 2H. We continue to recommend purchase of
Dell and Gateway.
========================================================================
PC Hardware Index Performance and Highlights
Our PC Hardware Composite is comprised of Apple, Compaq, Dell, Gateway, and
Micron Electronics. The PC Hardware Composite gained 4.5% WTD (0.5% YTD). Over
the same period, the S&P 500 gained 4.1% for the week (+8.7% YTD) as interest
rate fears were quelled temporarily after the Fed decided to leave rates
unchanged for the time being. Larger tech stocks were higher for the most part,
although some of the smaller players continued to trade down as the Street
continues to try to assess the aftereffects of the Taiwan quake. Following
discussions with management teams from each company in our universe, we continue
to believe that any manufacturing disruptions will occur in mid-October and
therefor will not effect C3Q, ending September, and that there will be ample
time during C4Q for vendors to compensate for any supply chain problems.
Apple shares rose 6.2% WTD (+60.2YTD). During the week, Apple held a conference
to announce the imminent release of its newest operating system - Mac OS-9, as
well as three new versions of its iMac line, and the company's long awaited ISP
strategy. By teaming with Compuserve for its ISP rebate program, we believe
Apple is ceding the opportunity for an incremental ISP revenue stream. Although
the company has clearly taken steps in the right direction by modestly lowering
iMac system ASPs, enriching feature content, and creating an ISP alliance,
Apple has still failed to fully embrace more beyond-the-box opportunities, and
has also failed to appropriately address the low-end of the market.
Compaq shares declined 3.3% WTD (-48.2% YTD) as investor concerns regarding
enterprise weakness and a potential Y2K slowdown continue to way on the stock.
Dell shares rose 7.0% WTD (+24.3% YTD). During the week, Dell held its annual
fall analyst meeting in Austin, Texas. The company emphasized that demand
trends remain strong across product lines and geographies, and management
expressed increased comfort about the outlook for Q4 with minimal disruption
expected from Y2K. Our primary concern remains near-term supply - not demand.
Management expressed comfort with its ability to source sufficient components
following the Taiwan quake - but as a result of its October quarter-end, it
poses us some concern. We do believe that growth prospects into 2000 remain
exceptionally strong, and that the stock remains attractively valued at 1.1
times its growth rate.
Gateway shares gained 4.8% WTD (+99.8 YTD). No significant news items were
announced.
Micron Electronics shares declined 0.6 WTD (-40.4 YTD). No significant news
items were announced.
Network Appliance shares gained 8.0% WTD (+69.6% YTD). No significant news
items were announced.
PC Channel Index Performance and Highlights
The PC Channel Composite, comprised of Compucom, Inacom, and MicroAge, posted a
4.5% decline WTD (-48.6% YTD). For the same period, the S&P 500 returned a 4.1%
gain (+8.7% YTD). We continue to believe that while the reseller stocks remain
cheap from a valuation perspective, there is no catalyst to drive a recovery in
the group.
Compucom shares declined 3.3% WTD (+3.6% YTD) and shares of Inacom declined 5.0%
WTD (-44.1% YTD). MicroAge shares declined 4.3% WTD (-86.6% YTD).
Data Storage Index Performance and Highlights
The Disk Drive Composite, comprised of Maxtor, Quantum HDD, Seagate, and Western
Digital shares, declined 3.8% WTD (-14.3% YTD). For the same period, the S&P
500 gained 4.1% (+8.7% YTD).
Maxtor shares declined 2.4% for the week (-54.5% YTD). Quantum HDD shares
declined 15.2% WTD, and Seagate Technology shares declined 2.4% WTD (-1.0% YTD).
Western Digital shares declined 13.4% WTD (-75.9% YTD). The short term rally
in the HDD stocks appears to be over, as investors have refocused on the pricing
environment, which continues to be extremely aggressive (albeit at better
levels than the June quarter).
Quantum DSS shares declined 18.7% WTD driven partly by HIFN's (a semiconductor
component supplier) comments regarding order cancellations from DSS possibly
stemming from an inventory problem. After a 14% stock decline on Friday,
Quantum responded by pre-announcing better than expected revenues and earnings
for the quarter of $357M and $0.34 per share versus our estimates of $353M and
$0.33, respectively. However, revenues and earnings are expected to be
relatively flat for the December quarter as a result of industry-wide Y2K
concerns, as well as lower than previously estimated demand from Compaq. The
company does expect to return to normal growth rates by early calendar 2000,
however.
Both Tandy Corp. and Circuit City reported same store monthly sales last week.
Tandy reported a continuing comparable store sales gain of 9% YOY, although the
computer business was reported as soft, reflecting an industry-wide decrease in
ASPs. Circuit City reported a 16% YOY rise in sales for the month of September,
in line with company expectations. Sales were reported to have shown healthy
growth across all major product categories.
Upcoming Events
Company Date Time Pru Est FC Est
Intel Corp. 10/12 5:30PM $0.66 $0.57
Seagate Technology 10/12 5:00PM $(0.07) $(0.07)
Apple Computer 10/13 5:00PM $0.45 $0.47
Quantum HDD 10/14 6:15PM $(0.62) $(0.63)
Quantum DSS 10/14 5:00PM $0.33 $0.34
Sun Microsystems 10/14 4:30PM NA $0.31
Iomega 10/14 4:30PM NA $(0.03)
Office Depot 10/14 $0.19 $0.18
Investment Recommendations
We believe Tier-1 vendors remain well positioned to enjoy a strong 2H. We
continue to recommend purchase of Dell and Gateway.
We believe PC reseller stocks will remain under pressure as a result of
increased vendor focus on direct initiatives in the large corporate market
space.
We believe the disk drive stocks will remain under pressure as industry price
conditions remain more aggressive than anticipated.
Apple (AAPL, $65 9/16, Hold); Circuit City (CC, $46 5/8, rated Accumulate by
Harry Katica); Compaq (CPQ, $21 3/4, Strong Buy); CompuCom (CMPC, $3 5/8,
Accumulate); Dell (DELL, $45 1/2, Strong Buy/SBI/Select List); Gateway (GTW, $51
3/4, Strong Buy/Select List); Intel Corp (INTC, $75 11/16, rated Strong Buy by
Hans Mosesman); Iomega, (IOM, 3 1/4, Not Rated); InaCom, (ICO, $8 5/16, Hold);
Maxtor (MXTR, $6 3/8, Hold); MicroAge (MICA, $2 1/16, not rated); Micron
Electronics (MUEI, $10 5/16, Accumulate); Network Appliance (NTAP, $76 1/8,
Strong Buy); Office Depot (ODP, 9 7/16, rated Strong Buy by Amy Ryan); Quantum
DSS (DSS, $11 7/16, Strong Buy); Quantum HDD (HDD, $5 15/16, Hold); Seagate
(SEG, $29 15/16, Hold); Sun Microsystems (SUNW, 92 1/2, Not Rated); Tandy Corp.
(TAN, $58 3/8, rated Strong Buy by Harry Katica); Western Digital (WDC, $3 5/8,
Hold).
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