Today's Briefing.com Semi Related News plus other items likely to effect trading tomorrow:
General Commentary
Though the indices snapped back late in the day to trim their losses, there's little excitement brewing for stocks - especially technology stocks. Disappointing earnings news from Oracle (ORCL) one night, and a major earnings warning from EDS (EDS) the next, just saps traders of any desire to go long. Considering that we have a good three weeks of preannouncement season left, investors should buckle up and prepare for a very bumpy ride.
How low can we go? Well the July lows are a good place to start. A meaningful probe of these levels is almost a certainty, particularly given the weakness (new lows) in the key semiconductor industry. July lows for the Nasdaq Composite (IXIC 1252.14 -7.81), Gsti Software (GSO 89.97 -1.65), Philadelphia Wireless (YLS 36.40 -0.44) and N.A. Telecom (XTC 364.21 -6.96) indices are at 1192.42, 84.29, 34.81 and 311.23, respectively.
As for the Philadelphia Semiconductor (SOX 262.79 -0.77) index it has been setting new lows on a regular basis this week... Though a bit oversold, deteriorating technicals and fundamentals suggest that additional weakness is likely in the days and weeks to come, with next support in the 240-230 area. And, as Briefing.com has said before, as long as semis are on the defensive it will be difficult for rest of sector to gain much upside traction.
Next couple of weeks likely to be tough, but if we emerge on other side of warnings season without the indices having moved to materially below July lows, it will be time to step back in and play the long-side - at least for a nice short-term rebound.
Robert Walberg
6:16PM North American Semiconductor Equipment Industry posts August Book-to-Bill Ratio of 1.14:
6:01PM EDS says price competition nothing out of ordinary (EDS) 36.46 -1.30: -- Update -- On call, says pricing competition isn't significantly different than it has seen in past... says its problems are related, in large part, to discretionary spending by existing base, where it would have made some margins, just not being there right now... notes that if its competitors don't have a similar experience, it would suggest to EDS its shortfall is due more to competitive factors than market factors... EDS -12.06 at 24.40
5:48PM After Hours Wednesday Price changes vs the 4pm close: Firmly bearish bias has been established in after hours trade with the most significant decline in reaction to another warning in tech.
EDS (EDS -32%) has slumped after slashing previous guidance for Q3 to a range of $0.12-$0.15 per share vs the consensus of $0.74 per share; sees revs of $5.3-$5.5 bln vs the current consensus estimate of $5.7 bln. Company said it expected customer discretionary spending to tighten, not virtually stop altogether. Competitors include IBM (-6.1%), ACS, ACN, KCIN, CSC.
Issuing guidance after hours were Danaher (DHR close 53.24) and Ingram Micro (IM close 12.97). DHR reaffirmed its comfort with the Q3 consensus of $0.73 and narrowed its 2002 guidance to $2.70-$2.75 from the previous range of $2.65-$2.75. IM said Q3 sales will range from $5.30 to $5.45 bln vs the consensus of $5.40 bln; now sees Q3 EPS between $0.09 and $0.11 ex items vs the consensus of $0.10 per share.
5:48PM EDS believes problems are interim ones (EDS) 36.46 -1.30: -- Update -- Thinks problems impacting Q3 and Q4 performance are interim issues, but can't quantify at moment how far they might stretch into new year... EDS -12.20 at 24.26
5:41PM EDS says long-term debt rating downgrades possible (EDS) 36.46 -1.30: -- Update -- On call, said its possible the debt ratings agencies could downgrade long-term debt ratings... stresses that it remains confident it will continue to have complete access to capital markets and that there are no material triggers in the event of ratings downgrades... EDS -12.48 at 23.98
5:41PM Maverick Tube guides Q3 lower (MVK) 10.13 -0.68: Company warns for Q3 (Sep), expecting EPS of $0.00-0.03 vs Multex consensus of $0.08; sees revenues of $110-115 mln (Multex consensus $120 mln); says that, consistent with current industry conditions, volume and prices have not increased as expected during Q3.
4:31PM Merrill Lynch fires two execs who declined to testify on Enron (MER) 35.51 -0.31: -- Update -- Announces it has terminated the employment of two executives, Vice Chairman Thomas Davis and Managing Director in Investment Banking Schuyler Tilney, who have declined to testify in an investigation by the SEC and the Dept of Justice into financial transactions initiated by Enron in 1999.
4:22PM Ingram Micro updates Q3 guidance (IM) 12.97 -0.24: Says Q3 sales will range from $5.30 to $5.45 billion vs the current Multex consensus estimate for sales of $5.40 billion; says Q3 earnings per share will range from $0.09 and $0.11 per share ex items vs the current Multex consensus estimate of $0.10 per share.
4:12PM Merix beats by two cents (MERX) 8.15 -0.43: Reports Q1 (Aug) loss of $0.20 per share, $0.02 better than the Multex consensus of ($0.22); revenues fell 12.8% year/year to $24.1 mln vs the $23.6 mln consensus.
4:06PM MKS Instruments updates guidance; cuts workforce (MKSI) 11.10 -0.16: Company announces a workforce reduction of approximately 7%; says third quarter revenues are expected to be within the $85 to $90 million range of guidance given on July 30, 2002 -- current Multex consensus estimate is for revs of $87.5 million.
3:32PM Xilinx: cautious comments from RBC (XLNX) 16.64 -0.59: Sources are telling us that RBC Capital believes XLNX is cutting wafer starts to UMC and will have to lower their guidance.
3:56PM Jabil Circuit (JBL) 17.23 -0.31: Although shares have spent most of the day struggling in negative territory on Prudential's recommendation to remain on sidelines, JBL has advanced about 6% from morning's levels in anticipation of in-line earnings announcement, expected tomorrow after market close. Salomon Smith Barney believes Outperform-rated techie has made its bottom, from an operations standpoint, and is in growth mode. Although warning of flimsy overall demand going forward, J.P. Morgan thinks JBL has substantial backlog of new revs streams supporting sequential growth; believes co. has best forward prospects for earnings growth and ROIC metrics in industry; expects shares to commend mid-$20's valuations; reiterates Buy rating. Despite upward swing in today's session, shares are still 1.8% down for the day.
3:51PM Oracle (ORCL) 8.40 -0.63: Nasdaq nears positive territory after sinking 25 points largely on ORCL's Q1 report and guidance last night; co matched consensus ests of $0.07 but guided Q2 to the lower end of previous guidance (sees earnings of $0.08-0.09 vs. consensus of $0.09); analysts maintain their cautious stance towards stock's near-term prospects. SG Cowen believes ORCL faces not only a sluggish IT environment, but is battling commoditization and competition; maintains their Mkt Perform rating. Merrill Lynch cuts their 2003/2004 ests and expects ORCL to remain at low-end of trading range. Needham downgrades to BUY from Strong Buy (see In-Play for details)
2:58PM Semis : Contributing to the softness in the group is Bear Stearns's est cuts on 11 cos (ALTR, AGR.E, ADI, CNXT, CY, INTC, LTCC, LSI, TXN, VSH, and XLNX) to reflect their expectation of a soft Q4 and seasonally weak Q1, followed by a moderate recovery in 2003. Firm lowers their industry revenue est for 2002 to 0% from 2% and their 2003 revenue growth est to 17% from 25% ... notes Sept bookings have not been encouraging with their checks indicating the qtr is ending with a "fizzle" and not a bang as it usually does. Bear believes there is another 20% downside risk in the worst case and remains at a Mkt Weight rating on the group.
2:21PM Cisco Systems revenue estimates may have to be lowered - Morgan Stanley (CSCO) 12.40 -0.14: -- Update -- Morgan Stanley is putting out some cautious comments on CSCO, saying they believe that the qtr may have been soft with component suppliers and that Street rev ests for next year may have to come down.
1:52PM Adobe Systems testing resistance (ADBE) 20.14 +0.18: -- Technical -- Stock has exhibited strength since its stronger than expected earnings release last week. Currently testing resistance in the range of 20.20 to 20.25 -- on a clean break higher, look for subsequent overhead at 20.50 and 20.80. The favorable intraday outlook would deteriorate on a failure to hold very near-term support at 20.00.
1:15PM Novellus continues to hold positive (NVLS) 22.36 +0.20: -- Technical -- Stock has demonstrated relative strength over the prior two sessions. Look for modest initial resistance at 23.60 followed by more significant overhead in the area of 24.00. To the downside, watch for initial support at 23.25 followed by an additional floor at 23.00.
1:14PM Molex estimates cut by Prudential (MOLX) 24.98 -0.60: Prudential cuts FY03 ests to reflect Hold-rated MOLX's exposure to the incrementally weaker communications and computing mkts (60% of revs) and its general lack of visibility; cuts FY03 EPS est to $0.68 from $0.73 (below consensus of $0.73), and cuts price target to $25 from $29.
12:55PM Cisco Systems (CSCO) 12.19 -0.35: Despite bearish implications of co's lower Sept backlog and market's negative reaction, reflected in stock having declined 2.8%, Merrill Lynch continues to recommend shares, with hefty stock buyback providing price-floor and increasing profitability, thinks only thing lacking is revs growth, which is expected toward end of Y02/ beginning of Y03 (provided continued economic recovery); given stock's valuation at low end of its historic trading range, believes risk-reward is very favorable at current levels; reiterates Buy rating.
11:34AM Intel tests $15.03 one-yr low set Sept 5 (INTC) 15.05 -0.52: A break here would leave the stock at its worst levels in almost six years.
11:22AM Weisel on Test & Measurement Instruments : In morning note, Thomas Weisel initiated on the Test & Measurement Instruments industry with an Underweight sector rating; noting that Government market is growing, and Industrial market is recovering. Firm starts LeCroy (LCRY) and Ixia (XXIA) with Attractive ratings... starts Danaher (DHR), EXFO (EXFO), Newport (NEWP), and New Focus (NUFO) with Market Perform ratings... reiterates Buy on Tektronix (TEK), believing it remains best positioned for a turnaround in general economy with its limited telecom exposure, continued investment in R&D and healthy balance sheet... rates Flir Systems (FLIR) a Buy, citing superior industry position due to its 48% military/government and 35% industrial exposure.
10:55AM QLogic breaks to 10-month low (QLGC) 29.46 -1.23: -- Technical -- Stock trading at its worst levels since last October, under notable support at 30.00. Look for next notable support at chart congestion in the broad range of 27.50 to 28.50. To the upside, watch for initial resistance at 30.00 followed by subsequent overhead around 30.50.
10:34AM Nasdaq testing support at 1,240 : -- Technical -- Index getting a good solid test of support at 1,240 -- on a break lower, look for subsequent support at 1,235 and 1,225. To the upside, watch for initial resistance at 1,250 followed by additional overhead at 1,260.
10:22AM Technical Levels: A look at the one-year chart on the Nasdaq illustrates several different points. Perhaps the most obvious point is that at current levels, the index is nearly 40% off its high for the year. For those fascinated by the minutiae, the Nasdaq touched its 2002 closing high on January 4th at 2,059 -- so we're roughly 800 points off those levels today.
Now if you look back to incorporate the 'bubble years' -- which many of us would probably rather not do -- the Nasdaq is now somewhere around 76% off its all-time high. This means that conversely, the index is now worth a stunning 24% of its aggregate value back in March of 2000. So those unpleasant statistics serve as the backdrop for assessing the current market outlook.
Going back to that one-year chart, the biggest question mark is this matter of how things have been shaping up since July. On the one hand, a solid argument can be made that the price action has been constructive or 'consolidative'. The index has made a series of four consecutive 'higher lows' and a two-year, 76% market crash isn't going to reverse overnight.
Yet on the other hand, the 'July to present' time frame is also taking on a somewhat disturbing look from the standpoint of its chart pattern. Namely, the index is taking on the shape of a crude head and shoulders pattern which is a decidedly bearish formation. This suggests the next several weeks will be important from the standpoint of determining the intermediate to longer-term direction.
For those who care, we continue to favor the former scenario of the 'constructive market' based on the picture as it currently stands. The macroeconomic fundamentals continue to hold up and seasonally the markets are heading into a favorable period beginning in November.
From the standpoint of straight technical levels, look for initial support at 1,240 which represents modest but notable former chart congestion. That's followed by significant support at 1,206 which represents the index' August 5th closing low. To the upside, watch for initial resistance in the range of 1,276 to 1,280. On a break higher, look for subsequent overhead at 1300 which represents the index' 20-day exponential moving average.
On one final point -- the Dow is also getting down to a key level worth keeping an eye on. If the index should fail to hold the 8,000 level on a closing basis, look for the near to intermediate-term bias to take a potentially notable turn for the worse. -- Mike Ashbaugh, Briefing.com
10:01AM Double Dip? : Many readers have been dismayed that Briefing.com's recent economic analysis has been too rosy, and believe that we are biased toward seeing only positive economic news and not negative. We will concede one point - we are biased. But our bias is not to be optimistic or pessimistic, it's to be right - unlike news organizations, we have an opinion about the economy. We believe that it is not as weak as many believe, and recent data suggest that this opinion has been correct.
Today's trade deficit report is the latest to indicate that the economy is faring quite well in Q3. Exports rose and imports fell, indicating that more of the sales occurring in Q3 have been sales of domestic rather than imported goods. This implies stronger domestic production, also known as GDP.
Even before this trade report, Q3 was shaping up quite well due primarily to strong consumer spending in July and August, and a large increase in capital goods spending in July. Q3 GDP now looks likely to grow in excess of 4%, and the trade data suggest that the risk to this number is on the upside. This certainly overstates the underlying growth rate, just as Q2's 1.1% growth understated it. Yet one conclusion is clear, this is not a double dip.
Much of the economic pessimism has stemmed from two factors. First, the stock market. Though the market's declines this year reduces consumer net worth and will have some impact on spending, the wealth effect has always been overestimated and this time will be no different. With the unemployment rate low, consumers will spend.
Second, the manufacturing lull. The ISM index has slipped from the mid-50s to 50.5% in Jul/Aug, an indication to some that the economy was headed down. But as we have noted before, a manufacturing sector lull is consistent with a sluggish recovery, not a double dip recession (manufacturing is only 1/5th of the economy). The ISM organization itself notes that the 50.5% reading has been consistent with 2.8% GDP growth in the past.
When we downplay negative economic readings and emphasize positive indicators, it's not because we are hopeless optimists. Earlier in the year, when many became excited by the quick lift out of recession, we were strenuously arguing against excessive optimism. Now we're arguing against excessive pessimism. As it has all year, the truth lies in the middle - the economy is neither humming nor diving; it's muddling along just fine. Greg Jones, Briefing.com
9:26AM Cisco Systems: lower Sept backlog a bearish sign - Wachovia (CSCO) 12.54: We are hearing that Wachovia views CSCO's lower Sept backlog as a bearish sign that indicates significant loss of visibility; this morning's 10-K discloses that backlog in early Sept 2002 was $1.4 bln vs $2.0 bln in Sept 2001 (down about 30% YoY); however, firm says that the sharp decline in backlog can be partially explained by the co's return to shorter lead times over the fiscal year.
8:49AM Oracle: Goldman comments on quarter (ORCL) 9.03: Goldman Sachs trims FY03 est to $0.39 from $0.40 to reflect a slower pace of economic recovery in 2003. Extrapolating from Oracle as a bellwether for the rest of the software sector, firm believes SeptQ results for the group will likely come in a bit shy of ests, but not as far off the mark as in previous qtrs given sharp est reductions after the JunQ.
8:13AM Solly cuts sector weightings on IT and Materials : Salomon Smith Barney lowers their sector weighting on the IT sector to Underweight from Mkt Weight due to their cautious stance on semis and semi equipment, and lowers Materials to Mkt Weight from Overweight due to valuation and their concern about rising oil prices and its impact on chemical stocks, which account for half of the sector's market cap. Firm continues to like the Financials sector due to valuation.
7:07AM General Electric earnings streak may be near the end - WSJ (GE) 27.70: The Wall Street Journal's Heard on the Street column speculates that GE's nine-year double-digit earnings streak could be nearing an end; article cites a number of Wall Street analysts who have cut 2003 ests for the co.
finance.yahoo.com^SOXX+ADBE+ALTR+AMAT+AMD+BRCM+CSCO+EDS+GE+IM+INTC+KLAC+LLTC+LSCC+LSI+MER+MERX+MKSI+MOLX+MOT+MU+MXIM+MVK+NSM+NVLS+ORCL+QLGC+TER+TXN+UMC+XLNX+^VIX+^IXIC&d=t
Don thanks for the excellent tables. Gottfried thanks for the chart and those to come.
RtS |
