Briefing.com - Tech Stock Analysis Updated: 08-Jan-01 General Commentary
Investing can be hard or it can be relatively simple - it's up to you.
On the one hand, you can expend energy fretting over the reasons behind the Fed's decision to move earlier and more aggressively than expected when it cut rates by 50 basis points on Wednesday. Do they know more than the rest of us about the severity of the slowdown? Did they move to head off the impact of a banking crisis in California related to the problems with that state's utility companies? You can also continue to agonize over the steady stream of earnings warnings and the sloppy performance of the old leadership names in technology.
Or you can adopt the time-tested and very simply market strategy which says that you don't fight the Fed. Once the Fed moves from tightening to easing, it's rally time. Not overnight, mind you, as the market still has to work through the noise associated with the slowdown that necessitated the change in policy. But within a few months the market has historically righted itself, and after another few months have passed it's usually pretty clear that a new uptrend is firmly in place.
Unfortunately, CNBC, CNNfn, the WSJ, Barron's, Time. etc. tend to overanalyze everything - especially a change in Fed policy - making it easy for investors to lose sight of the big picture. Changes in Fed policy are rare and major events. History tells us that when the Fed changes policy it should be your focal point.
By moving to lower interest rates the Fed is telling the market that it will take whatever steps necessary to bolster the economy. And with a stronger economy comes stronger corporate earnings. Basically, by the middle of this year the economic/earnings outlook should be much improved. Traders should also keep in mind that any improvement will be magnified by soft comparisons. Finally, it is important to keep in mind that the market is forward looking. Just as the big market break early last year presaged the soft economy that we now see by several months, the market will begin to rally well in advance of the actual economic upturn.
Given that the numbers should begin to improve no later than mid-year, it won't be long before stocks are beginning to foreshadow the economic recovery. How will they do that? By going higher.
Though Briefing.com expects most of the tech sector to participate in the rally eventually, the overhang of disappointing earnings will result in some near-term turbulence. Consequently, traders need to be selective at the moment.
One way to narrow the field a bit is to look for those stocks that have spent some time base building and/or moved back above their 50-day moving averages. Sprint (FON), KLA-Tencor (KLAC), Micron (MU), Worldcom (WCOM) and Altera (ALTR) all come to mind. Conversely, investors might want to wait a bit longer before jumping back into those stocks that continue to exhibit sloppy technical characteristics and/or relatively lofty valuations... A few such names are: Siebel Systems (SEBL), Broadcom (BRCM), Sycamore Networks (SCMR), Macromedia (MACR), Adobe (ADBE), JDS Uniphase (JDSU), Ariba (ARBA) and PMC-Sierra (PMCS).
Whatever your strategy for stock selection, it should be guided by one simple theme - don't fight the Fed. As of Wednesday, that translates in to "buy."
Robert Walberg
Industry Briefs
Computer Systems & Peripherals | Networking | Internet | Semiconductor | Semi Equipment | Software | Telecom Equip | Telecom Services
Computer Systems & Peripherals
Industry Members
Gateway (GTW) 19.46 -2.29: Prudential concerned that soft Christmas sales and aggressive pricing could cause margins to fall below the 23.1% level projected by company, creating a potential earnings risk despite company's pre-announcement.
Handspring (HAND) 36 35/64 -4 1/32: Bear Stearns initiated coverage of issue with a NEUTRAL rating, as firm's valuation model implies a 12-month target of $31-$36; says stock may be of interest to long-term investors who view HAND as a call option on the handheld market
Hewlett-Packard (HWP) 30 5/8 -4: Goldman Sachs lowered January quarter estimates due to continued deterioration in the PC market and the likely spillover into inkjet printers; takes revenue down by $150 mln to $13.1 bln and EPS down by $0.03 to $0.38 compared with First Call mean of $0.43; also trimmed current year EPS estimate to $1.75 from $1.85 vs current mean estimate of $1.93.
Iomega (IOM) 4.02 +0.16: After Friday's close, warned for Q4; sees EPS of $0.02-0.04, (between $0.07 and $0.09, including approximately $15 mln, or $0.05 per diluted common share, resulting from an expected decrease in allowance for net deferred tax assets)... current EPS estimate is $0.11. Revenue is expected to between $325 and $330 mln.
Networking
Industry Members
Nx Networks (NXWX) 1 13/64 -23/64: After the close Thursday, company warned that Q4 revenues will be approximately $3 mln versus $9.857 mln in the yr-ago period... Year-end revenues should be $27 mln which is down 14% from the prior year.... Blamed weaker than expected domestic demand and an expected recovery in Europe that didn't materialize for the Q4 disappointment.
Internet
Industry Members
Amazon.com (AMZN) 14 9/16 -15/16: Banc of America believes there is low probability of upside to the Q4 guidance and that Q4 numbers will likely reflect a further slowdown in company's rates of growth; firm feels that AMZN shares have more downside potential from current levels; rates stock a MKT PERFORMER.
Ariba (ARBA) 34 1/16 -8 13/16: Some of weakness in stock attributed to Salomon Smith Barney note discussing increase in the reserve for doubtful accounts; believes this calls into question the fact that ARBA's dot-com clients might be at risk; firm estimates ARBA's dot-com exposure at about 7.6% of revenues, but notes that under worst case scenario the company's 2001 earnings (est. $0.20) would be impacted by approx. a penny.
BackWeb Tech (BWEB) 2 5/8 -1 13/32: Company warned for Q4; sees loss of $0.11-0.14; current EPS estimate is $0.00; cited recent slowdown in IT-related spending among the Global 2000 companies.
eBenX (EBNX) 6 1/16 -1 3/16: W.R. Hambrecht downgraded to BUY from STRONG BUY; lowers price target to $14 from $22; says until EBNX announces a significant number of large, new contracts and demonstrates that it can steadily grow its enrollment base at a 30% or better growth rate, firm does not expect significant price movement in EBNX stock.... Separately, AG Edwards downgraded to MAINTAIN POSITION from ACCUMULATE based on current revenue expectations and potential that loss per share estimates for 2001 will not be achieved. Said with no new contract announcements since last quarter's earnings release, it has elected to take a conservative posture now and step to the sidelines until it better understands the outlook for 2001.
Eprise (EPRS) 1 3/8 -1 3/32: Provider of Strategic Content Management solutions warned Q4 will be a loss of $0.18-0.22; current First Call estimate is for a loss of $0.11; revenues will be approximately $5.9 mln, below previous guidance of $6.9 mln; attributes revenue shortfall primarily to a deteriorating economic climate which led to greater deliberation on the part of sales prospects and a marked lengthening in the sales cycle.
Jupiter Media Metrix (JMXI) 6 13/16 -2 1/8: Thomas Weisel downgraded to BUY from STRONG BUY; firm continues to strongly believe in the long-term viability of the JMXI model; however in the near term, firm believes that the slowing dot-com economy could reduce potential for upside in operating results.
Keynote Systems (KEYN) 13 7/8 -3 1/16: Chase H&Q downgraded to MKT PERFORM from BUY based on poor visibility for FY01 revenue growth; KEYN issued warning yesterday for Q1 due to shortfall in revenue due to weakness in the Internet Service Provider market... Dain Rauscher Wessels downgraded to NEUTRAL from STRONG BUY AGGRESS following pre-announced shortfall.
MyPoints.com (MYPT) 31/32 -3/32: Provider of Internet direct marketing services warned Q4 will be a loss of $0.41-0.46, current First Call estimate is a loss of $0.33; expects revenues of $12.5-14.5 mln; expenses in the period were larger than expected due in part to non-recurring integration costs associated with the Cybergold acquisition, executive recruiting fees and severance costs.
New Era of Netwks (NEON) 5 9/16 -7/8: After Friday's close, warned for Q4; sees loss of $0.35 per share (including a $0.10 per share charge); current EPS estimate is $0.11. Revenues are expected to be approximately $40 mln for the quarter. NEON will record a restructuring charge as part of its Q4 2000 results.
Talarian (TALR) 3 5/16 -5/16: Warned of a Dec. qtr loss of $0.18-$0.20 vs $0.11 loss anticipated by Wall Street; company attributes shortfall to an unexpected slow-down in the completion of agreements in its order pipeline during the 2nd-half of Dec; revises guidance for 2001 to a loss of $0.67-$0.81 vs loss of $0.39 expected by analysts.
Yahoo! (YHOO) 28 1/2 -1 1/16: Bear Stearns expects company to meet firm's $0.13 estimate when results are reported Jan. 10. However, looks for company to be cautious on 1st-half of 2001, leading firm to lower Q1 and Q2 estimates by a penny. Nonetheless, firm reiterating BUY rating, believing that investors who purchase stock at current level and below will outperform the S&P 500 in 2001.
Semiconductor
Industry Members
Applied Micro (AMCC) 63 1/2 -9 7/8: Banc of America reduced price target to $120 from $160 due to volatile market capitalization trends; continues to believe that AMCC is a titan in the broadband networking arena; also believes AMCC is on track to "upside crush" firm's December quarter revenue and earnings expectations of $118 mln and $0.14, and will give powerful forward guidance for March quarter of 2001.
Broadcom (BRCM) 87 -13 1/4: Morgan Stanley Dean Witter reiterated STRONG BUY rating after the company announced that its 2-chip (BCM3415 and BCM3401) cable modem silicon tuner passed DOCSIS (Data Over Cable Interface Specification) compliant testing via certification of an Ambit Microsystems PCI cable modem. By capturing more of the silicon content around its dominant digital signal processing chips, BRCM is making it difficult for competitors to break-into the market.
Conexant (CNXT) 15 3/4 -1 1/2: Company's dial-up modem technology to provide Internet connectivity for Sony's PlayStation2 entertainment system.
Fairchild Semi (FCS) 15 -5/16: After Friday's close, Company warned for Q4; sees revenues below estimate; current EPS estimate is $0.82. Expects Q4 revenues of $468-470 mln and Q1 sales 5-8% below Q4.... As an aside, Q1 is typically a seasonally slow period for the semiconductor industry.
Gemplus Intl (GEMP) 15 11/16 -5/16: Thomas Weisel initiated coverage with a BUY; believes GEMP is attractively priced on a P/E/G basis, at just 1.4x firm's 30% estimate of normalized earnings growth; expects new handset products and evidence of wireless subscriber growth to be longer-term catalysts for the stock.
National Semi (NSM) 24 1/8 -1 3/16: Company introduced smaller, lower-power consumption family of chips, the NDV86xx, which delivers a cost-effective, flexible and highly competitive technology solution in the rapidly growing DVD market.
Silicon Labs (SLAB) 12 15/16 -3 3/16: SG Cowen lowered its already below consensus EPS view after SLAB's largest customer, PC-Tel (PCTI 8 1/8 -9/16), which accounts for approx. 40% of revenues, announced a shortfall in revenues; firm cuts 2001 view to $0.52 from $0.60 (mean $0.65); maintained 2002 estimate based on new product outlook.
Transmeta (TMTA) 18 3/4 -1/8: Held its ground following announcement that a Philips unit will use TMTA's Crusoe microprocessor in its in-panel, system-board integrated touch-screen liquid crystal display.
Semi Equipment
Industry Members
Lam Research (LRCX) 18 5/16 +1/8: Shares of semiconductor equipment maker boosted by ABN AMRO upgrade to BUY from ADD; firm cited valuation for the move; ABN's price target is $30.
Software
Industry Members
Applix (APLX) 3 1/8 +7/16: Provider of CRM applications expects to report Q4 revenues of $13.5-14 mln, above its previous estimates.
BMC Software (BMCS) 21 13/16 -1/2: Announced appointment of Robert E. Beauchamp as its new president and chief executive officer and a member of company's board of directors; will succeed Max Watson who will remain as chairman until April 30, 2001.
Microsoft (MSFT) 49 1/8 +11/16: Wall Street Journal reported that MSFT will unveil and demo its Xbox video-game console's technology at the CES Las Vegas electronics conference this Saturday.
Telecom Equip
Industry Members
Audiocodes (AUDC) 10 1/16 -1 1/16: USB Piper Jaffray downgraded to BUY from STRONG BUY and lowered price target to $25 from $85. Firm also cut 2001 estimates, citing slowdown in telecom spending.
Aware (AWRE) 16 3/8 +1 9/16: Company issued upside preannouncement for Q4, saying it expects to meet or exceed its financial guidance and consensus estimates; current First Call consensus EPS estimate is $0.16.
Brooktrout Tech (BRKT) 6 15/32 -4 13/32: Southwest Securities downgraded to NEUTRAL from BUY based on the company's lowered outlook for Q4.
Copper Mountain (CMTN) 4 9/32 -15/32: Designer of DSL equipment guided Q4 revenue outlook to $46-$49 mln based on adverse impact of continued weakness in its CLEC customer base and the decision not to recognize $8 mln of equipment shipped during Q4 to one of its major customers. The decision was made based on uncertainty of customer's ability to pay.
LM Ericsson (ERICY) 11 5/16 -3/16: Dain Rauscher Wessels initiated coverage with a BUY AGGRESSIVE based on company's global dominance of the mobile infrastructure market; believes ERICY's technology leadership and enviable customer list should create strong long-term revenue and earnings growth as the market migrates to 3G.
Motorola (MOT) 21 3/16 -1 7/8: Dain Rauscher Wessels initiated coverage with a NEUTRAL rating due to a lack of near-term catalysts and expectations of lowered guidance.
Next Level (NXTV) 10 3/4 -1/16: W.R. Hambrecht downgraded to MKT NEUTRAL from STRONG BUY based on the Company’s announcement of a significant shortfall in revenues and earnings for the fourth quarter.
Nokia (NOK) 42 5/16 -1 7/8: Dain Rauscher Wessels initiated coverage with a BUY AGGRESSIVE based on company's global dominance as it leverages scale, brand, and a best-in-class product portfolio; expects NOK will grow faster than the overall handset market in 2001 as it capitalizes on its scale advantages, meaningfully enters the CDMA market, and takes advantage of weaknesses at its largest competitors.
QUALCOMM (QCOM) 73 1/16 -5 7/8: Entered into a CDMA modem card license agreement with Qualified Mobile Telecommunications (QMtel) of Seoul, Korea; under terms of royalty-bearing agreement, QCOM has granted QMtel a license under certain QCOM intellectual property to develop, manufacture and sell CDMA and cdma2000 1xEV modem card products for use in wireless data communication devices.
Telecom Services
Industry Members
American Tower (AMT) 36 1/4 -3 5/16: Company warns Q4 EBITDA will be $56-60 mln, below previous expectations due primarily to a one time reserve of up to $7 mln for bad debt; expects revenues of $226-$233 million, above estimates due primarily to stronger than expected sales in the Services and Internet, voice, data and video segments. AMT reaffirmed its fiscal 2001 outlook
Sprint PCS (PCS) 23 15/16 +1/16: ABN AMRO upgraded to BUY from ADD rating and price target of $50; believes that selloff in PCS created by concerns over slowing subscriber growth and share overhang have created an attractive buying opportunity.
XO Comms (XOXO) 22 +1: Merrill Lynch reiterated NT BUY/LT BUY after the company raised $450 mln in a convertable offering. Merrill says firm is funded into Q1 2002. Merrill also reiterated their top picks within the sector: Allegiance (ALGX 31 1/2 +1/2), McLeodUSA (MCLD 18 15/16 -15/16), and XOXO given their strong funding positions, asset bases, and solid management teams.
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