Updated: 22-Nov-02 General Commentary - Well it took a few tries but the Nasdaq finally took out stubborn resistance at 1423, and it did so in convincing fashion. Volume swelled to 2.4 bln shares, with up volume swamping down volume by better than 8-to-1. Meanwhile, advancers outlegged decliners by 2-to-1, and new highs beat new lows by nearly 3-to-1. All in all, a very strong day for the tech-heavy Nasdaq.
Just yesterday on this page Briefing.com noted that if/when the 1423 ceiling gave way, traders would read the break out as a very bullish short-term technical sign, and start to pile on. That's more or less what happened, with decent earnings news out of Hewlett-Packard (HPQ) providing the catalyst.
Where the sector moves from here is a topic of great debate, with many on the street pointing to momentum and an improving economic/earnings backdrop as reason for additional gains. Conversely, there are those that see the gains as overdone given the sluggish IT environment, questionable valuations and lingering overcapacity. These folks - the bears - see a limited upside and a growing risk of a sizable correction.
Briefing.com has tended to side with the bear camp, at least over the intermediate-term, as we weren't seeing any noticeable improvement in sector fundamentals. However, our confidence in that call is a bit shaken by the sector's resilience and by its steadily improving technical posture. Toss in the favorable seasonal bias and it's looking more and more like the sector will maintain its bullish bias for at least another few weeks.
Nevertheless, Briefing.com standing on its position that the risk/reward ratio favors caution at current levels. As we noted the other day, with technical tone improving a break of 1423 was not only possible but probable. Unfortunately, we expect the clouded macro-picture to cap the sector's/market's upside potential. Next resistance is in the 1480 to 1500 area (200-day moving average actually sitting at 1504).
Robert Walberg
Brocade Communications (BRCD 6.00 -1.28) falls into the not so good category. Although the provider of infrastructure for storage area networks met earnings expectations for fiscal Q4 (Oct), it disappointed with its guidance for fiscal Q1 (Jan). Citing its concerns about a possible contraction in the supply chain to end user, BRCD said it expects Q1 revenues in the range of $120-125 mln (Multex consensus $157.5 mln) and net income per share of breakeven; the current Multex consensus estimate is for a profit of $0.08. Separately, BRCD's President and COO announced he is stepping down at the end of fiscal Q1 to spend more time with his family.
Finally, it was reported that the semiconductor equipment industry book-to-bill ratio fell to 0.73 in Oct. from 0.84 in Sept.-- not the best indication by any means and certainly below the 0.84 reading expected by Salomon Smith Barney. The aforementioned ratio means $73 worth of new orders were received for every $100 of product billed for the month. Bookings of $766 mln slipped from the revised Sept. '02 level of $832 mln, but were 19% above orders posted in in the yr-ago period (these are rolling 3-month avgs).
For more detail on these, and other after hours developments, be sure to check Briefing.com's In Play, Earnings Calendar, and Guidance pages.-- Patrick J. O'Hare, Briefing.com
6:02PM Semi book to bill falls to 0.73 : Semi equipment industry book-to-bill ratio fell to 0.73 in Oct from 0.84 in Sept; SSB est for Oct is 0.84, so this report appears to be worse than expected. Bookings fell/rose to $766 mln from revised $832 mln in Sept (these are rolling 3-month avgs).
5:08PM Brocade provides color to Q1 guidance (BRCD) 7.28 +0.89: -- Update -- On call, in response to analyst question, says its cautious Q1 (Jan) guidance is rooted in lack of seasonality seen in Fall period and concern that there may possibly be a contraction in the supply chain to the end user... notes that it expects issue to be a one quarter phenomenon and that it expects to resume growth in fiscal Q2 (Apr)... BRCD -0.75 at 6.53
5:03PM Brocade Pres. and COO stepping down (BRCD) 7.28 +0.09: -- Update -- On call, President and COO, Michael Byrd, said he is stepping down at end of fiscal Q1 (Jan) to spend more time with his family... will serve as adviser to CEO until end of fiscal Q2
5:00PM Brocade guides Q1 below consensus (BRCD) 7.28 +0.89: -- Update -- On call, says it expects fiscal Q1 (Jan) revenues in range of $120-125 mln and net income per share to be breakeven excluding restructuring and acquisition-related charges... Current Multex consensus estimates are $157.5 mln and profit of $0.08, respectively
4:19PM Brocade meets consensus, will lay off 12% of workforce (BRCD) 7.28 +0.89: -- Update -- Reports Q4 (Oct) earnings of $0.07 per share, in line with the Multex consensus of $0.07; revenues rose 31.4% year/year to $153.1 mln vs the $152.3 mln consensus; co also announced it will cut cut its workforce by 12%.
4:59PM Flextronics upbeat looking to FY04 (FLEX) 10.55 +1.06: -- Update -- On call, Flextronics is increasingly optimistic for growth in FY04 (June) and expects to see percentage gains over FY03... FLEX adds that it is gaining market share in a number of segments, believes customer demand is "is getting a little bit better," and is pleased with its pipeline heading into FY04.
4:41PM Flextronics maintains Q3 outlook; sees Q4 guidance at "lower end of range" (FLEX) 10.70 +1.21: -- Update -- On mid-quarter conference call, Flextronics reaffirms that business is stabilizing in the December quarter (Q3) and reiterates prior guidance of EPS of $0.09-0.12 and revenues of $3.4-3.6 bln ... However, FLEX continues to have limited visibility into Q4 (March) and expects earnings and revenues will come in toward the low end of the prior guidance range, which was EPS of $0.05-0.08 and net sales of $3-3.3 bln
4:16PM Microsemi reports in-line results, guides below consensus (MSCC) 7.09 +0.84: Reports Q4 (Sep) earnings of $0.03 per share, in line with the Multex consensus of $0.03; revenues fell 14% year/year to $49.2 mln vs the $49.1 mln consensus; says book-to-bill for Q4 was 0.91; expects Q1 EPS of $0.01 and expects sales to decline by 3-8% sequentially (to about $45.3-$47.7 mln), vs consensus of $0.04 and $49.4 mln.
4:13PM Marvell beats by a penny (MRVL) 24.33 +0.59: Reports Q3 (Oct) earnings of $0.14 per share, $0.01 better than the Multex consensus of $0.13; revenues rose 85.9% year/year to $135.9 mln vs the $131.2 mln consensus.
4:12PM Novell tops estimates (NOVL) 3.87 +0.50: Reports Q4 (Oct) earnings of $0.04 per share, $0.01 better than the Multex consensus of $0.03; revenues fell 4.9% year/year to $300.3 mln vs the $289.5 mln consensus; says it will "likely post earnings at slightly above break-even for its first fiscal quarter" -- Multex consensus estimate is for earnings of $0.02 per share.
Close Dow +222.14 at 8845.15, S&P +19.61 at 933.76, Nasdaq +48.21 at 1467.56: For the most part, the market had a one-track mind today as it started on an upbeat note and moved steadily higher throughout the proceedings... Its bullish disposition was rooted in a number of factors, including the carryover momentum from yesterday's rally...
Aside from that, investors were heartened by Hewlett-Packard's (HPQ 18.99 +2.14) relatively reassuring fiscal Q4 (Oct) earnings report and outlook for fiscal Q1 (Jan), the solid showing by foreign markets, the resilience of General Electric (GE 26.85 +2.05) after the blue chip company issued an FY02 earnings warning and raised its quarterly dividend, and a batch of better than expected economic data that validated the understanding that economic conditions aren't getting worse and may, indeed, be improving... Those reports included initial claims for the week of Nov. 16, Leading Indicators for October, and the Philadelphia Fed Index for November... As to be expected, the Treasury market was bothered by the positive implications of the data, not to mention the continued strength in the equity market, and spent the majority of its session on the defensive...
The 10-yr note, down nearly a full point at one time, was off 24 ticks at 4.15% when the equity market closed... Not surprisingly, there was some talk of asset reallocation (out of bonds and into stocks) acting as a supportive factor for stocks... Active participation from institutional investors, which may have been prompted by concerns of missing out on the next leg higher in the recovery rally, contributed to the market's resilience, as well as the heavy volume that accompanied today's session... More than 2.0 bln shares, in fact, were traded at both the NYSE and Nasdaq...
As the final standing of the indices implies, today's gains were broad-based from both a market-cap, and industry, standpoint with key leadership groups, like technology, transportation, and financial, setting the pace... The few laggards of note were those groups that typically have a safe-haven label attached to them, such as managed care, beverage, drug store, and household products... In the Dow, only six of its 30 components-- MO, XOM, WMT, KO, JNJ, and PG-- ended the day with a loss and Procter & Gamble (PG 86.73 -1.26) was the only component to drop more than a point...
Finally, it is worth noting that, with today's gains, each of the major indices eclipsed prior recovery highs that had been established in the rally off the October lows...DJTA +2.1%, Nasdaq 100 +4.4%, Russell 2000 +2.3%, SOX +8.1%, S&P Midcap 400 +2.3%, NYSE Adv/Dec 2206/1012, Nasdaq Adv/Dec 2296/1064
1:41PM Hewlett-Packard (HPQ) 19.15 +2.30: Shares have advanced an impressive 13.6% following last night's stellar Q402 results of $0.24, $0.02 better then Multex consensus, and in-line Q103 guidance of $0.27. While analysts are impressed with good quarter driven by printing, imaging, and good execution against merger plans, they are shying away from recommending purchase. Thomas Weisel suggests to wait for further top-line catalysts before becoming aggressive; while share price remains reasonable, thinks further upside will depend on strong sales performance, which may be difficult to deliver. Soundview Technology thinks company is a "high-teens trader" until Dec 3-4 analyst meeting where more color will be provided on fundamentals. Banc of America, although acknowledging stock as cheap, does not suggest to chase at current levels as limited visibility and continued weakness in end markets should provide better entry point
10:20AM Intl Rectifier (IRF) 24.01 +1.55: Before open, UBS Warburg initiated with a Hold rating and price target of $23. Firm believes IRF is successfully transforming itself from a discrete semiconductor maker to a provider of proprietary systems ICs and modules. Also, thinks product mix shift toward proprietary products will enable company to raise gross margins above its historical average, create competitive barriers to entry, and increase visibility; says automotive sector should be key catalyst for growth over next couple of years. Firm says fundamentals are solid and co. is well positioned for longer term; however, stock does not represent an exceptional risk-reward tradeoff at current $22 price, and firm would look to build positions at or below the $18 level in near-term.
1:06PM Brooks-PRI Automation cut to Sell from Hold at Deutsche; target lowered to $10 from $17 (BRKS) 14.95 +1.26: -- Update --
12:31PM Dell Computer falters (DELL) 28.79 -0.41: -- Technical -- Spikes higher with the rest of the market in early trade but quickly reverses course dropping as much as 4% off the intraday peak. The issue has been on the defensive since faltering near its Jan 02 and Apr 01 highs. For the near term watching 28.65/28.60 support. Failure argues for follow through with initial support at 28.35 in front of the recent low of 28.01 (also marks 50 day ema). Takes a sustained push through 29.15/29.20 to improve the tone.
11:52AM Nasdaq Composite short term levels : -- Technical -- Early run kicked into second gear after initial resistance was penetrated but index has stalled for the time being at a secondary level highlighted this morning at 1460/63 (see 09:50 comment). Case can certainly be made for a correction (two day near 7% surge) with initial supports at 1450/1445 and 1435 but it takes a slide back through the breakout point (1425/1420) to inflict any damage short term. Next near term resistance is at 1475.
11:00AM Sector Watch: Semiconductor : Semi sector (SOX +7.5%) once again leading the charge. Top performing components include: BRCM +13.2%, ALTR +10.6%, XLNX +9.9%, LLTC +8.9%, LSCC +7.9%, NVLS +7.4% and AMAT +7.7%. SOX index approaching a solid resistance in the 365/367 area (retracement, Aug highs) with a minor secondary barrier at 373/375. Aug high for the semi HOLDRS (SMH at 28.52) comes into play at 29.20.
9:50AM Nasdaq Composite short term levels : -- Technical -- Bolts to a new recovery high in early trade and is holding just below resistance in the 1445/1450 area. A secondary barrier comes into play at 1460/1463. First level support is at 1430 followed by the recent recovery highs in the 1425/1420 area.
9:19AM Marvell: cautious comments from GKM (MRVL) 23.74: Gerard Klauer Mattison believes that tougher fundamentals are around the corner for MRVL due to an increased level of competition with INTC in GigE and more importantly, with AGR.A in storage; despite firm's belief that the co is currently in the "sweetest spot of its fundamentals" and is likely to beat Q3 expectations, stock reflects sky-high expectations. Price target is $11.
9:04AM Hewlett-Packard upgraded at Buckingham (HPQ) 16.85: Buckingham upgrades to Strong Buy from Accumulate, saying they look for significant multiple enhancement following last night's earnings report; raises 2002-03 rev/EPS ests and raises price target to $26 from $22.
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