From Briefing.com: General Commentary - As Briefing.com predicted here yesterday, if Nasdaq held above support in the 1267 area (50-day moving average) in early trading buyers would step back in during the afternoon. That's exactly what happened as traders once again bought into the dip. The buy-the-dip mentality we've seen over the last week is a huge change in psychology, and suggests that the recovery rally still has legs.
Of particular interest was the sharp rebound in the Philadelphia Semiconductor (SOX) index... After getting hammered to the tune of 6% on Monday in reaction to disappointing earnings out of Texas Instruments (TXN), the bellwether index snapped back nearly 8% in Tuesday's action. Gains were led by large-cap, institutional favorites such as Intel (INTC 16.16 +6.9%), Applied Materials (AMAT 14.41 +10.1%), KLA-Tencor (KLAC 32.71 +7.1%), Micron (MU 15.68 +8.5%) and National Semi (NSM 13.51 +7.2%)... Even Texas Instruments got into the act, recapturing 0.88 points, or 6.3%... That gains occurred despite cautionary comments from KLAC was particularly impressive, as it showed that investors are looking beyond the current downturn to a pick-up in demand in the next few months.
Unfortunately, we've seen this movie before -- and it doesn't have a Capraesque ending. While earnings numbers have generally exceeded estimates it's almost completely the result of improved operating efficiencies - not improved demand. With most companies suggesting that revenues will remain sluggish (and in most cases below consensus) in Q4 and into early next year, there's little reason to get overly optimistic about the prospects of a recovery. Each time investors have done so they've regretted the move within months, if not weeks. Until we see consistent and compelling evidence of a demand recovery, rebounds in the volatile chip sector need to be viewed as corrective in nature.
Oversold sentiment indicators combined with impressive short-term momentum, suggest that the current corrective advance will be rather powerful... In a Story Stock yesterday, we noted that the Nasdaq was likely to at least test trendline resistance in the 1365 area... This ceiling has acted as stubborn resistance for the last 22-months... If the index manages to break above this ceiling, additional gains likely to be modest - at least initially - as secondary resistance sits in the 1400-1428 area.
Either way, investors can expect the sector to spend a little more time backing and filling in the days ahead. The nature of the consolidation phase will tell us a lot about the intermediate-term prospects of the market. Orderly and contained declines will suggest potential for renewed gains into year-end. On the other hand, if Nasdaq were to break back below its 50-day moving average and subsequently breach the 1220-1200 area, bulls would again run for cover amid fears of being caught in another bear trap.
Robert Walberg
6:15PM After Hours Wednesday Prices changes vs the 4 pm close: Another active after hours session as the earnings deluge continues. While the activity level is high, the market bias is only mildly bullish.
Like the day session, upside leadership is coming from the semi sector. Topping its estimate by $0.06 for Q3 was LSI Logic (LSI +13.1%); revenue was also above the consensus ($487 mln, vs $479 mln). As for Q4, however, now expects revenue to be in the range of $475 mln to $500 mln vs the consensus estimate for revs of $510 mln.
5:02PM Genesis Microchip tops estimates (GNSS) 12.75 -0.20: Reports Q2 (Sep) earnings of $0.07 per share, $0.01 better than the Multex consensus of $0.06; revenues rose 28.1% year/year to $46.3 mln vs the $45.4 mln consensus; company estimates that Q3 revenue will be in the range of $46 to $47 million -- Multex consensus estimate is for revs of $45.4 mln.
4:52PM ON Semiconductor reports in-line EPS, revs light, issues guidance below consensus (ONNN) 1.33 +0.02: Reports Q3 (Sep) loss of $0.13 per share, in line with the Multex consensus of ($0.13); revs were $272.0 mln vs consensus of $284.4 mln. Expects Q4 revs to decline 3-5% sequentially (about $258-$263 mln), vs consensus of $281 mln.
4:36PM Microchip matches estimates (MCHP) 25.65 +1.26: Reports Q2 (Sep) earnings of $0.17 per share, in line with the Multex consensus of $0.17; revs were $169.7 mln, vs consensus of $170.5 mln; revenue for the third fiscal quarter ending Dec. 31, 2002 is currently anticipated to be approximately $173 to $178 million -- Multex consensus estimate is for revs of $177.7 mln.
4:32PM Cirrus Logic matches estimates (CRUS) 2.20 +0.20: Reports Q2 (Sep) loss of $0.09 per share, in line with the Multex consensus of ($0.09); revenues fell 3.4% year/year to $73.3 mln vs the $72.5 mln consensus; Q3 loss per share is expected to be $0.12-$0.16 -- Multex consensus estimate is for loss of $0.08 per share.
4:29PM Power Integrations matches estimates (POWI) 13.25 -0.18: Reports Q3 (Sep) earnings of $0.08 per share, in line with the Multex consensus of $0.08; revenues rose 22.5% year/year to $28.2 mln vs the $28.2 mln consensus; says Q4 earnings in the fourth quarter should be in the range of $0.08 to $0.09 per share -- Multex consensus estimate is for earnings of $0.09 per share.
4:26PM ESS Tech misses by 9 cents (ESST) 6.00 +0.50: Reports Q3 (Sep) earnings of $0.07 per share, $0.09 worse than the Multex consensus of $0.16; revs were $60.7 mln, vs consensus of $62.1 mln. Expects Q4 EPS of $0.02-$0.05 on revs of $45-$50 mln, vs consensus of $0.07 and $54.4 mln.
4:23PM Varian beats by 3 cents, issues guidance below consensus (VARI) 31.24 +1.08: Reports Q4 (Sep) earnings of $0.41 per share, $0.03 better than the Multex consensus of $0.38; revs were $208 mln, vs consensus of $197 mln. Expects Q1 EPS of $0.37 and FY03 EPS of $1.62-$1.65, vs consensus of $0.39 and $1.71.
4:22PM Silicon Storage meets EPS consensus on light revs (SSTI) 4.47 +0.22: Posts a Q3 loss of $0.01 a share (ex-items), $0.01 better than the Multex consensus. Revs fell 8.6% to $67.8 mln (consensus $70.33 mln). For Q4, co sees a loss of $0.03 to $0.05 (consensus $0.00).
4:19PM Foundry Ntwks beats by 2 cents (FDRY) 6.25 -0.24: -- Update -- Reports Q3 EPS of $0.06, $0.02 better than the Multex consensus; revs were $76.6 mln, vs consensus of $75.9 mln.
4:16PM Intersil beats by a penny, issues guidance (ISIL) 17.28 +1.09: -- Update -- Reports Q3 EPS of $0.19, $0.01 better than the Multex consensus; revs were $191.3 mln, vs consensus of $187.8 mln. Expects Q4 EPS of $0.20 and 1-3% sequential rev growth (consensus is $0.21 and $198.9 mln), and expects 2002 revs of $720 mln (in-line with consensus).
4:08PM LSI Logic tops estimates (LSI) 4.92 +0.34: Reports Q3 (Sep) earnings of $0.04 per share, $0.06 better than the Multex consensus of ($0.02); revs were $487 mln, vs consensus of $479 mln; expects 2002 Q4 revenues to be in the range of $475 million to $500 million -- Multex consensus estimate is for revs of $510 mln..
4:07PM Micrel matches the consensus estimate (MCRL) 7.09 +0.49: Reports Q3 loss of $0.04 per share, in line with the Multex consensus. Revs rose 11.8% year/year to $50.4 mln vs the $50.1 mln consensus. MCRL sees Q4 revs roughly flat with Q3 (consensus $50.18 mln).
3:25PM KLA-Tencor (KLAC) 32.46 +1.91: Discounting company's strong operating performance throughout downturn and last night's in-line earnings of $0.23, analysts are taking more cautious stance on company in light of further deteriorating industry fundamentals and lack of near-term catalyst, with downgrades from Thomas Weisel to ATTRACTIVE from Strong Buy and USB Piper Jaffray to MARKET PERFORM from Outperform. Although lowering rating, USB Piper continues to believe KLAC will grow ahead of broader semi equipment industry growth rate of 15%. UBS Warburg is optimistic about KLAC's managerial ability and commercially successful product line with large market share; reiterates Buy rating and price target of $34. Despite cautious outlook and commentary, shares have advanced 6.3% in sync with 7.3% gains in SOXX.
3:03PM Nasdaq touches new one-month high : Breaks to its best levels since September 11th.
2:50PM Market chatter : For what it's worth, we're hearing from traders that this afternoon's rally can be attributed to a combination of hedge fund short-covering and mutual fund buying; we're told that many hedge funds are increasingly covering their short positions and taking a more neutral stance, and at the same time mutual funds have been putting money to work in the rally; it is also worth mentioning that Oct 30 is end of the mutual fund fiscal year, which leads some traders to believe a bit of window dressing may be occurring.
2:25PM Nasdaq tests 1,300 level : -- Technical -- Index currently testing resistance at 1,300. On a break higher, watch for initial resistance at 1305 followed by additional overhead at 1312 and 1320. To the downside, look for initial support at 1294 with a break lower opening the way to 1287.
2:07PM Beige Book : The Beige Book reports that economic activity remained sluggish in Sept and early October. Retail sales were weak across the nation, including some declines in motor vehicle sales from very high levels. Manufacturing activity had declined or grown more slowly. Home building and residential markets were upbeat, commercial real estate markets softened. Labor markets were lackluster in all Districts. Most Districts reported strong consumer loan demand and weak commercial lending activity. Credit quality deterioration was reported in some Districts.
1:07PM Photon Dynamics (PHTN) 19.05 -3.16: Shares have declined over 14% in today's session due to last night's worse than expected Q402 earnings of loss of $0.08 vs. Multex consensus of $0.03 and associated downgrade to NEUTRAL from Buy by Merrill Lynch based on decreased 2H03 visibility, recent volatility in revenues and orders. Stock's decline was forecasted by Soundview Technology, who maintains Outperform rating due to confidence in company's ability to achieve earnings run-rate of over $1.50 during upturn; firm suggests to use territory in high-teens as buying opportunity (shares currently at $19.05).
12:13PM SOX holds in positive ground : -- Technical -- SOX is demonstrating relative strength, holding in modestly positive ground -- currently trading at 266, look for initial resistance at 270 followed by additional overhead at its 50-day simple moving average of 277. To the downside, look for initial support now at 264 followed by an additional floor in the area of 260. Sector components leading the move include: MU, INTC, AMD, LSI, XLNX, LSCC, TXN, MXIM.
11:07AM Intel opens $2 bln manufacturing facility for 300-mm wafer production (INTC) 15.42 +0.30:
10:28AM Intersil (ISIL) 16.49 +0.30: Before open, Bear Stearns initiated with a Peer Perform, believing company is adept at developing high-performance, application-specific analog and mixed-signal products for high-growth applications, such as WLAN (wireless local area networking), power management, optical storage, and displays. Also, firm thinks co. has an excellent track record of execution. While ISIL is executing well, industry fundamentals remain weak and competitive pressure in WLAN is unlikely to abate near term. In firm's view, risk-reward profile of stock is favorable; however, near-term catalysts for the stock remain negative.
10:08AM Foundry Ntwks initiated with Sell rating at Fulcrum, target is $5.50 (FDRY) 6.25 -0.24: Stock is showing relative weakness this morning, perhaps due in part to Fulcrum's pre-open initiation of the co with a Sell rating; says enterprise spending is still under pressure, domestic and int'l service provider spending will not improve in 2003, declining ASPs will likely put pressure on co's gross profit margins next year, and operating leverage is likely limited going forward. Price target is $5.50. (Note, co reports after the close tonight.)
8:46AM Storage Tech upped to Buy at First Albany on better than expected results (STK) 12.95:
8:44AM Soundview storage survey indicates lower growth in 2003 : Soundview says their storage survey indicates that the rate of growth in storage budgets is expected to be lower in 2003 than in 2002, and that spending intentions for Fibre Channel switches are less positive for 2003 than 2002 and point to lower growth in spending on SAN infrastructure next year. Cuts BRCD's ests and price target to $11 from $14 and ELX's ests and target to $15 from $16.
8:34AM Thomas Weisel downgrades select semi equipment names : Thomas Weisel lowers their sector weighting on the Semi Capital Equipment sector to Mkt Weight from Overweight; believes that industry is entering a period of bifurcation as the prolonged downturn has created a chasm between co's that are profitable, have strong balance sheets, and little debt, and co's that are burning cash and are more highly leveraged; unless the industry is bailed out by an unexpected near-term recovery, firm expects this trend to continue. Downgrades KLAC, AMAT, NVLS, AEIS, LRCX, MKSI, TER, and VECO (see upgrades/downgrades for details).
8:27AM Newport upgraded to Neutral at CSFB on valuation; target $10 (NEWP) 9.75:
7:41AM Dupont Photomask posts in-line results; guides Q2 below consensus (DPMI) 18.12: Reports Q1 loss of $0.31 per share, in line with the Multex consensus. Revs rose 8.8% year/year to $84.2 mln vs the $84.0 mln consensus. For Q2, co sees a loss of $0.31 to $0.70 on revs of $75-$85 mln (consensus -$0.25 and $83.07 mln).
7:29AM Photon Dynamics cut to Neutral at Merrill Lynch after earnings miss (PHTN) 22.21:
Negative news for the Nasdaq came from KLA-Tencor (KLAC 30.55) which beat current quarter estimates but guided next quarter's estimates significantly lower. Seriously, though, is it news that yet another semiconductor industry stock is guiding lower for the next quarter? After Intel guided lower on October 15, this should not be affecting the tech sector in general. In fact, KLAC was down over 10% ahead of the report yesterday as traders bet on that loaded coin. |
