From Briefing.com: Updated: 05-Feb-03 - General Commentary - Spooked by ugly guidance from Alcatel (ALA), traders wasted little time in dumping tech stocks. Nasdaq dropped below 1300 for the first time since October, though it edged back above that psychological floor right before the close. Caution ahead of Secretary of State Powell's speech and ahead of Cisco's earnings report also limited buying interest in the market/sector.
After Tuesday's close, Cisco reported earnings that exceeded the consensus forecast by two cents. Cost-cutting not increased demand behind the bottom-line improvement. Unfortunately, there was nothing in the headline numbers or in the guidance to give the sector/market a shot in the arm. In fact, revenues and guidance proved a little disappointing. On back of ugly guidance from Applied Materials (AMAT) and Alcatel (ALA), news out of Cisco regarding early year business won't sit well with investors. Company noted that we remain in a show- me economy. Corporate leaders telling company that as their business improves, their investment priorities will center on productivity.
Without much help from Cisco, market unlikely to reverse Tuesday's miserable performance. Just no reason for buyers to return ahead of war with Iraq, especially not when gold and oil are surging to their highest level in decades, and when the greenback is setting new multi-year lows.
Technically, sector breaking down badly, though Briefing.com notes that two groups - Semiconductor and Computer Hardware are approaching deeply oversold territory. Given that these two industry groups often set the overall tone for the sector, any technically inspired rebound could trigger a more general sigh of relief rally.
For complete post-earnings coverage of CSCO please see Briefing.com's In Play and/or Earnings Calendar page.
Robert Walberg, Briefing.com
6:43PM Tuesday After Hours price changes vs 4pm ET levels: Presently, the S&P futures, at 849, are 1 point above fair value while the Nasdaq 100 futures, at 974, are 1 point above fair value. In general, tonight's quarterly reports were reassuring and matched and/or surpassed consensus expectations, although in the case of a few companies, their guidance left something to be desired.
Speaking to this trend, Cisco (CSCO 13.09 -0.11) turned in a respectable Q2 (Jan) report, but issued an uninspiring outlook for Q3 (Apr) that failed to denote a pick-up in business conditions. Specifically, the networking and communications equipment manufacturer reported Q2 pro forma net income of $0.15 per share, $0.02 ahead of the Multex consensus estimate, on revenues of $4.71 bln (Multex at $4.73 bln). During its conference call, CSCO said it expects Q3 gross margins at 68-70%, product book-to-bill to be slightly less than 1.0, and revenues to be flat to down slightly (i.e. 2-3%) from Q2 levels. The current Multex revenue estimate is pegged at $4.75 bln. Peer companies of CSCO include ALA, CHKP, CIEN, ETS, EXTR, FDRY, JNPR, LU, and SCMR.
Having slipped approximately 10% since the start of the year, Computer Sciences Corp (CSC 32.02 +1.27) is rallying 4.1% in extended action after the IT services company topped the consensus EPS expectation of $0.60 by a penny in its Q3 (Dec) report. Revenues, however, checked in on the light side of things at $2.79 bln versus the consensus estimate of $2.87 bln. As for its Q4 outlook, CSC anticipates earnings per share will be in the 'mid 90s' and revenues will decrease by 2-4% before any contribution of the DynCorp acquisition is realized. The Q4 Multex consensus estimates currently stand at $0.95 and $3.14 bln, respectively. Related companies include ACS, EDS, IBM, and KCIN
5:27PM Cisco Systems clarifies Q3 book-to-bill guidance (CSCO) 13.20 -0.28: -- Update -- On call, clarifies in Q&A that book-to-bill guidance for Q3 of slightly less than 1.0 pertains to product book-to-bill only
5:19PM Cisco Systems comments on Q3 book-to-bill (CSCO) 13.20 -0.28: -- Update -- On call, says it wouldn't be surprised if Q3 (Apr) book-to-bill is slightly below 1.0... CSCO -0.16 at 13.04
5:15PM Cisco Systems cautious on external perspective for Q3 (CSCO) 13.20 -0.28: -- Update -- On call, CEO said he is more optimistic heading into Q3 than he was heading into Q2 with respect to issues CSCO can influence and control; however, he is more cautious heading into Q3 versus heading into Q2 regarding the external perspective as customers' visibility continues to contract
5:11PM Cisco Systems guides Q3 revenue below consensus (CSCO) 13.20 -0.28: -- Update -- On call, says it expects Q3 (Apr) revenues to be flat to down slightly (i.e. 2-3%) from Q2... Current Multex consensus revenue estimate for Q3 stands at $4.75 bln (CSCO had revs. of $4.71 bln in Q2)... expects Q3 gross margins at 68-70%... CSCO -0.16 at 13.04
4:59PM Cisco Systems says CEOs more conservative (CSCO) 13.20 -0.28: -- Update -- On call, says it is seeing even more conservative attitudes from CEOs than a quarter ago... CSCO -0.42 at 12.78
4:38PM Cisco Systems says book-to-bill still below 1.0 in fiscal Q2 (CSCO) 13.20 -0.28: -- Update --
4:12PM Cisco Systems reports $0.15 per share two cents ahead (CSCO) 13.20 -0.28: Reports Q2 (Jan) earnings of $0.15 per share, $0.02 better than the Multex consensus of $0.13; revenues fell 2.1% year/year to $4.71 bln vs the $4.73 bln consensus.
4:16PM MKS Instruments tops estimates; updates guidance (MKSI) 12.00 -1.01: Reports Q4 (Dec) loss of $0.07 per share, $0.03 better than the Multex consensus of ($0.10); revenues rose 54.9% year/year to $77.6 mln vs the $68.5 mln consensus; says "first quarter 2003 revenues could range from $73 to $78 million"; sees pro forma net loss of $0.05 to $0.10 per share -- Multex consensus estimates call for a net loss of $0.09 per share and revs of $67.6 million respectively.
4:15PM American Power beats by $0.02 (APCC) 15.50 -0.46: Reports Q4 earnings of $0.23 per share, $0.02 better than the Multex consensus. Revs rose 5.7% year/year to $358.0 mln vs the $342.4 mln consensus. "While we are pleased that we are currently experiencing low-single digit year-over-year revenue growth for the first quarter 2003, it is not clear from our analysis, or that of leading IT companies and industry analysts, that macro IT spending has rebounded."
4:05PM Centillium tops Q4 estimates (CTLM) 3.29 +0.05: Reports Q4 (Dec) loss of $0.09 per share, ex-items, $0.07 better than the Multex consensus of ($0.16); revenues fell 28.4% year/year to $24.7 mln vs the $23.0 mln consensus.
12:42PM Lam Research surges 4.7% on 1.6x average volume (LRCX) 12.41 +0.56:
10:54AM Nasdaq testing support at 1300 : -- Technical -- Index continues to hold its worst levels of the session. From current levels, watch for initial support at congestion around 1297 to 1300, followed more modest support in the vicinity of 1288. To the upside, look for modest initial overhead now at 1308 followed by more important overhead at 1320. For a more detailed account of the current technical outlook please click here.
10:36AM Sector Watch: Semiconductor : -- Technical -- Sector index (SOX 270) reaches positive ground after poor start with the recovery led by gains in ALTR +1.8%, LLTC +1.4%, LSI +0.9% and LSCC +0.9%. However, takes sustained follow through beyond resistance in 272/273 area to bolster the outlook for a more lasting recovery attempt. Yesterday's high provides next resistance (277.16). Supports on a failure are at the early low of 266.35 followed by 264 and the recent low for the move at 261.38.
10:04AM Amkor (AMKR) 4.69 +0.06: Lehman Brothers initiates OVERWEIGHT. Target $7. Thinks co's positive leverage from stable materials costs, increasing unit loadings, and pipeline of IDM business is underestimated; would be buyers at these levels.
8:28AM Juniper Networks may get LU agreement: Light Reading (JNPR) 8.91: Optical networking site Light Reading reported late yesterday that Lucent (LU) may be considering a reseller agreement with Juniper in which LU will resell JNPR's core IP routing gear; any such deal would be seen in part as a strategy to prevent Cisco (CSCO) from gaining greater access to the RBOC market.
7:38AM Tellabs: CSFB comments on CFO resignation (TLAB) 7.80: After the close, TLAB announced the resignation of its CFO to join privately held SIRVA Inc. At the margin, CSFB views this as a negative given the high executive turnover co has experienced over the last 12 months. CSFB maintains its Neutral rating and $6 target.
7:25AM Amkor started at Lehman with Overweight and $7 target (AMKR) 4.63: At 0.5x Price/TTM sales, firm thinks co's positive leverage from stable materials costs, increasing unit loadings, and pipeline of IDM business is underestimated, and firm would be buyers at these levels.
9:54AM Technical Levels : If you like a flat market, it doesn't get any better than the past week. Looking back at the prior six sessions points to just how flat this market has been. Taking last Monday's open at 1329 -- that's on January 27th -- all the way through yesterday's close at 1323, it comes out to a fascinating open/close net change of roughly six points -- again that's over the course of six sessions.
So the Nasdaq's single-day gain of less than three points yesterday fits with the recent consolidation pattern. Yet also note Monday's trade activity occurred on remarkably light volume, not even approaching 1.3 billion total shares traded. By the end of the session, the market internals were about as close to parity as you could expect, with advancing volume outpacing declining volume by about 6 to 5. So all in all, the market really isn't doing much ahead of this meeting at the United Nations.
Now last week we touched on how things were shaping up on the Nasdaq Volatility Index, which is also known as the VXN. Just to quickly review, the VXN is inversely correlated with the Nasdaq and serves as a measure of market uncertainty -- more typically referred to as market fear. Without making things overly complicated, the index measures the variability in options prices which tend to rise as the fundamental backdrop becomes less certain.
What remains interesting here is the relationship between the VXN and its 50-day simple moving average. Since the market bottomed way back on October 10th, that 50-day moving average has served as a turning point for the Nasdaq. Now over the preceding two sessions, you can see that on a closing basis, the VXN has held below that blue line. Yet what's also notable is that on an intraday basis, the index has ventured above the line for significant tests of this area.
So while the Nasdaq itself has held relatively flat on a net basis, the underlying market uncertainty has been edging higher of late. Now this isn't to say increased uncertainty is surprising with the United Nations meeting set for tomorrow, yet it is worth noting. Put another way, if developments would arise which are viewed unfavorably by the market, the index is situated technically such that it's vulnerable here to a decent slide.
Looking straight at the Nasdaq in and of itself -- i.e. excluding variables such as the VXN -- the technical landscape hasn't changed substantially. The near-term bias remains relatively neutral based on the recent price action.
Getting straight to the technical levels -- these will take into account this morning's gap lower. To the downside, look for initial support in the range of 1297 to 1300, followed by an additional floor at 1280, and then again by that straight-line support drawn on the chart at 1260. To the upside, the Nasdaq once again faces resistance at 1320 which has more recently served as a solid floor. If the index should reclaim that 1320 level, look for subsequent overhead in the vicinity of congestion in the range of 1330 to 1332. -- Mike Ashbaugh, Briefing.com
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