From Briefing.com: Updated: 13-Mar-03 - General Commentary - Just how bad is it out there? Of the 8 industry indices that Briefing.com monitors, 7 are trading below their 50- and 200-day moving averages. Several are also trading at new multi-month lows. Only the Disk Drive Index (DDX) is holding above its long-term 200-day moving average.
Picture among the large-cap leadership issues not much any better. Cisco (CSCO), Intel (INTC), Microsoft (MSFT), Dell (DELL), IBM (IBM), Nokia (NOK), KLA-Tencor (KLAC) and Applied Materials (AMAT) all trading below their 50- and 200-day moving averages. Again, most are also trading at or very near major lows. Of the big names, Oracle (ORCL) and Qualcomm (QCOM) showing the most resilience to selling - though neither stock looking very healthy these days.
Though the technical tone of the sector is rather bleak, Briefing.com notes that several groups continue to exhibit relative strength. By that we mean that they're holding up reasonably well compared to the broader market. The Disk Drive, Networking (NWX), Internet (DOT), Semiconductor (SOX) and the Software (GSO) indices are all outperforming the major market indices.
Briefing.com continues to question tech sector's relative strength given that underlying fundamentals remain soft. Recent evidence suggests that conditions will remain tough for the foreseeable future as companies hold off on IT spending due to uncertainties overseas and the sluggish domestic economy. One explanation we've given for the sector's outperformance stems from fact that 3-yr decline of over 70% has washed out most of the sellers. In other words, if you were going to sell Lucent (LU), PMC-Sierra (PMCS), Siebel Systems (SEBL), etc. there's a good chance you've already done it and moved on.
While lack of sellers may have enabled groups to hold up reasonably well over last couple of months, Briefing.com maintains that investors will need to see more consistent and compelling evidence of a demand recovery if techs are to build on their early year "success." Without growth in end-user demand, sector likely to relinquish its early leadership role.
Robert Walberg
Elsewhere, shares of Cymer Inc (CYMI 24.59 -1.26) are dipping 5% in the after hours session after the supplier of excimer laser light sources lowered its outlook for Q1 (Jan). In particular, CYMI now expects revenue to come in at the low end of the $71-74 mln range (Multex of $72.4 mln), and its book-to-bill ratio to be below 1.0. As a result of higher than originally forecasted initial materials costs for its new XLA 100 light sourcegross, margins are expected to be 27-30%, down from 31-34%.
4:44PM Intel CEO says against expensing options -- Dow Jones (INTC) 16.20 +0.35: Separately says co's flash prices to remain the same.
4:32PM Cymer sees Q1 at low end of guidance (CYMI) 25.85 +0.36: Now sees Q1 revenue at the low end of the $71-$74 mln range vs the Multex consensus estimate of $72.4 mln; expects book-to-bill below 1.0. Lowers gross margin forecast to 27-30% from 31-34% due to higher than originally forecasted initial materials costs for its new XLA 100 light source.
3:03PM Chart Watch -- S&P 500 : When we reviewed the S&P 500 last week it was noted that while the index was still within its month long trading range, it had recently failed again to take out resistance at 852 and its 20 day ema on a closing basis. These developments left the short term tone neutral but implied that the underlying negative bias was still dominant. Obviously the bears resumed control this week with the index staging a breakout. We were curious at this point to see how the S&P 500 was doing in comparison to all the major averages and for informational purposes it was included below. Clearly the larger cap/blue chip indices have come under more significant pressure with tech still outperforming on a relative basis.
On to the chart of the S&P 500. Yesterday's technical breakout clearly elicited some follow through selling interest today but the index has put together a recovery rally this afternoon. We would note that this is not unusual behavior. Back in late January the index penetrated the multi-month trading range with pressure seen for two days and approximately 2.8%. This week's breakout move has also been two days with the move at roughly 2.2%. When coupled with the deeply oversold near term indicators and the VIX at a five month high, the case can be made for at least a period of upside consolidation.
The points we be focusing in on for indications of the underlying strength of such a short term bounce are at the breakout point (806), a chart barrier in the 810/811 area, an pivot point at 819 and the 20 day ema (at 828 today but declining). Send comments, questions or suggestions to -- Jim Schroeder, Briefing.com
2:00PM Foundry Ntwks weak today following cautious comments (FDRY) 7.70 -0.60: Pacific Growth says FDRY indicated at a conference this morning that although their March qtr is on-track, the mkt was getting more challenging and could have an impact on their June qtr.
11:37AM Broadcom (BRCM) 14.53 +0.44: Salomon Smth Brny upgrades Underperform to IN-LINE. Target $15. Firm's expectation that co's news flow is gradually shifting from negative to positive; raises 2003 est to $0.19 from $0.16 and 2004 to $0.41 from $0.37, both slightly below consensus.
10:10AM The Bear Facts: Intersil Corporation (ISIL) The acronym WLAN, which stands for wireless local area network for the non-technical language readers, has become quite a buzz on the street these days. The wireless revolution seems to be getting a tremendous amount of steam from companies such as Intel and McDonald's who believe its customers will transition accordingly to the new frontier of computing. Intersil, a pioneer in the WLAN markets, has witnessed significant growth in its WLAN family of product offerings. The Company was the first to market with WLAN products by years with its older military technology derived from Harris Corporation. However, Intersil might be in for a bumpy road ahead.
Does 802.11 mean anything to you? Well, it does to anyone who is familiar with this wi-fi technology. There are several variations of this specification, which is set by the Institute of Electrical and Electronics Engineers or (IEEE). The most ubiquitous being 802.11b with 802.11g rapidly following in succession. We could spend all day talking about the myriad of flavors available and currently being developed in anticipation for the rapid adoption of a wireless network. These specifications are continuously being improved and developed by major semiconductor players with Intersil being the one-time leader of the 802.11b pack. As we look at the WLAN marketplace today, we are hearing words on the street that inspire fear in the hearts of loyal investors such as commoditization and margin erosion associated with Intersil's future.
This is a classic case of if you build it, they will come. Intersil's success has attracted Intel and Broadcom, the whale sharks of the semiconductor ocean, to its feeding frenzy of revenue growth in this burgeoning space. As a result, we now see Intel with an auspicious Centrino launch and Broadcom announcements of rapid adoption and shipment of its 802.11g chips. Did we also mention that Marvell, while late to market, also has thrown its hat in the ring to help commoditize these markets. What does all of this mean for Intersil?
In an interview with Sierratech Research, a San Jose based technology research firm, a senior analyst suggests Intersil is at a disadvantage to its competitors given their ability to integrate the entire WLAN solution into a single chip. The significance of having a single chip solution in the semiconductor game is smaller size, cost effective and expediency to market. He states, Since Intersil does not design its RF chip in the ubiquitous CMOS process, it can't integrate that function into its own CMOS based baseband/controller chip. Intersil could still redesign its RF chip in CMOS, but Intel and Broadcom already have done so. So, what does all of this mean for a company which derives approximately 30% of its revenues from wireless networking? I don't really think I have to answer that question.
Intersil's competitors will continue to develop lower power, cost effective and highly integrated WLAN solutions. This puts pressure on average selling prices for ISIL's products and inevitably leads to lower margins in its wireless networking group. These developments do not bode well for Intersil's WLAN future and will probably lead to pricing pressure on the stock. While ISIL is not just a WLAN company, a significant portion of its price appreciation can be attributed to the buzz associated with the WLAN markets.
-- John Meza, Briefing.com
8:29AM Axcelis Tech gets another order from China's SMIC (ACLS) 4.34
7:44AM Broadcom upgraded at Solly (BRCM) 14.09: Salomon Smith Barney upgrades to In-line from Underperform based on their expectation that the news flow for the co is gradually shifting from negative to positive; says co is making significant progress in diversifying its rev mix, which is mitigating their concerns about its exposure to the cable mkt; raises 2003 est to $0.19 from $0.16 and 2004 to $0.41 from $0.37, both slightly below consensus. Target is $15.
7:38AM Altera raises Q1 guidance (ALTR) 11.66: CSFB notes that ALTR raised its Q1 rev guidance to a +4% QoQ growth from its previous guidance of flat to up/down 2%; firm raises Q1 rev/EPS ests to $187.9 mln/$0.08 from $180.6 mln/$0.07, but says the stock is fully valued. Target is $12.
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