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To: Shoibal Datta who wrote (49022)	7/10/2001 8:50:54 PM
From: Proud_Infidel	Respond to of 70976

The End Is Near? Salomon's Joseph Sees Third-Quarter Bottom for Chips By Dan Bernstein Staff Reporter 7/10/01 2:29 PM ET (Updated from 11:16 a.m. EDT) Call it "Zen and the Art of Semiconductor Bottom Calling." In a research note this morning, semiconductor guru Jonathan Joseph wrote: "The industry will seek balance, and we believe this is the first quarter of that transition." In an elaborate metaphor describing mountain climbers in the Death Zone above 24,000 feet, the Salomon Smith Barney chip analyst called for a bottom in the sector during the third quarter, with an uptick in the fourth quarter as year-over-year order comparisons improve. "Given that 80% of our companies preannounced weaker than forecast earnings, investor focus will likely be on guidance for Q3 and beyond," Joseph wrote. "We expect Q3 to be down slightly from Q2, but for the outlook to be cautiously optimistic about the rest of the year." Today's call wasn't the first time Joseph got excited about the sector. Back in early April, he upgraded the entire semiconductor sector to market outperform and tacked buy ratings onto eight of the biggest names in the group, citing improving macro-economic conditions. While most other analysts argued his call then , the Philadelphia Stock Exchange Semiconductor Index, known as the SOX, has risen 12% since the start of April, topping the 4.6% rise in the S&P 500 during that period. Of course, Joseph was also the analyst that warned investors out of the sector back in late November of last year, before the sector tumbled. In today's note, the analyst said he believes the personal-computer component segment will lead the sector out out of the doldrums, followed by broad-line, wireless and finally wireline chip companies. "We favor Intel (INTC:Nasdaq - news - commentary), Texas Instruments (TXN:Nasdaq - news - commentary), Analog Devices (ADI:NYSE - news - commentary), Altera (ALTR:Nasdaq - news - commentary), Agere Systems (AGR^A:NYSE - news - commentary) and Applied Microcircuits (AMCC:Nasdaq - news - commentary)," he wrote. Joseph said the industry is "in an extremely hostile, but also very transitory condition. The pain of the current climate can not last forever, just as the euphoria of a year ago could not last." Joseph called for a 5% sequential increase in PC unit shipments in the third quarter, and a 10% to 15% sequential rise in the fourth quarter. The analyst also said signs in the computer-motherboard industry and DRAM pricing lead him to believe that a bottom is near.

To: Shoibal Datta who wrote (49022)	7/11/2001 3:56:11 AM
From: Jacob Snyder	Respond to of 70976

July 11, 2001 Compaq Sales to Miss Estimates As Slowdown Spreads to Europe By GARY MCWILLIAMS Staff Reporter of THE WALL STREET JOURNAL Compaq Computer Corp., coping with sales that fell well below its expectations, said second-quarter earnings will come in below an already-lowered forecast. The computer maker also will record a $490 million charge for a new round of 4,000 job cuts. The Houston company said it expects to earn four cents a diluted share on revenue of about $8.4 billion in the quarter. A year ago, it earned 21 cents a share on sales of $10.13 billion. This will be the third time in three quarters the company has conceded it wouldn't meet its profit forecasts. "It is now clear that the economic slowdown is spreading overseas, and we will therefore move more swiftly and go even deeper in our structural cost-reduction programs," Chief Executive Michael D. Capellas said in a statement. In April, the company originally lowered its second-quarter profit estimate to five cents a share on revenue of about $9.2 billion, down from a per-share estimate of 17 cents profit on $10 billion in sales. Actual results are expected to be released July 25. Investors had been bracing for the bad news, and last month Compaq's shares closed at a 52-week low of $13.20 -- a level not seen since October 1996. Compaq's disclosure comes as the computer industry's woes continue to mount. Among its rivals in big computers and storage, EMC Corp. and Hewlett-Packard Co. both warned that the slowdown, which started in the U.S. last year and moved to Europe earlier this year, also has spread to Asia and Latin America. Sun Microsystems Inc. projects sales will drop 22% in the quarter ending June 30. Shares of International Business Machines Corp. have fallen recently on heightened concerns that the company will join its peers and miss expectations. Chief Financial Officer Jeff Clarke said the company experienced "particular weakness in the U.K. [United Kingdom], Germany and Switzerland," which accounts for the bulk of its European sales. Lower sales and prices would reduce gross margin, or profit after manufacturing costs, by one percentage point to 21.7%, he said. Compaq said it will dismiss an additional 4,000 employees world-wide, on top of 4,500 cuts earlier this year. The cuts will dismiss 12% of its 71,300 full-time employees, and lower annual operating expenses by $900 million, up from $600 million previously. Charles R. Wolf, a computer analyst at Needham & Co., said the cuts largely reflect personal-computer woes. "On one hand, Compaq wants to focus on services and big computers where margins are higher. But it's having to fight a rear guard action against this company in Austin, [Texas], that's just taking the screws to them," he said, referring to rival Dell Computer Corp., which has launched a price war. Mr. Wolf said the projected $8.4 billion in revenue is Compaq's lowest since it acquired Digital Equipment Corp. in 1998. Combined sales haven't been as low since the third quarter of 1996, he estimated. Compaq's PC unit is struggling under slack demand and a fierce price war. Two of its biggest PC customers, distributors Ingram Micro Inc. and Tech Data Corp., recently forecast second-quarter sales will drop between 13% and 18%, respectively. "From my vantage point, they have finally realized they are behind the eight ball in terms of cutting operating expenses," said Christian Koch, senior technology analyst at Trusco Capital Management, Atlanta, which manages a $50 billion portfolio. "They should have cut faster." Recently, several analysts slashed their outlook for the quarter and entire year. Gerard Klauer Mattison & Co. recently chopped Compaq's 2001 revenue forecast to $39.73 billion, down $800 million since May. Salomon Smith Barney slashed $2.1 billion off its 2001 revenue forecast, to $36.5 billion. "Large corporate demand for PCs in the U.S. and Europe was weaker in the second quarter than it was in the first," and any rebound is not likely until next year, said Salomon Smith Barney's Richard Gardner. Write to Gary McWilliams at gary.mcwilliams@wsj.com