Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Gottfried who wrote (9128)	3/24/2003 7:57:04 PM
From: Return to Sender	Read Replies (1) \| Respond to of 95617

Network Equipment . . . Friedman Billings Ramsey says that Juniper Channel checks with competitors and customers indicate light 1st quarter revenues (firm's 1st quarter revenue estimate is $145 million versus consensus of $154 million). At 6x sales, former high-flier could occupy the void where the valuation is too high for value players and growth too low for momentum investors. Price target is $2. Motorola raised its tender offer for the shares of Next Level Communications it doesn't already own to $1.18 a share from $1.04 a share. The new offer represents a 26 percent premium to Friday's closing price of 94 cents. Motorola noted that an independent committee of Next Level's board of directors recommended by a three to one vote that Next Level stockholders tender their shares in the revised offer. Piper Jaffray upgraded Ericsson to Outperform from Market Perform based on their belief that company risk has diminished in recent months due to management changes and tighter cost reductions. The firm raised price target to $10 from $8. Semiconductors . . . W.R. Hambrecht reiterated its Buy rating based on the prospect of gross margin expansion to 40+% in the next 4 quarters vs. 37.3% in the December Quarter stemming from 1) passive component integration directly on GaAs substrate, 2) move to leadframe from laminate-based PA modules, and 3) current fab transition from 4' to 6'. Agere Systems (spun off from Lucent Technologies) was raised to ``sector outperform'' from ``sector perform'' by analyst James E. Jungjohann at CIBC World Markets. Conexant Systems said it'll separate its Mindspeed Technologies Internet infrastructure business in a tax-free spin-off to shareholders. The spin-off, which is expected to be completed during the summer, will create two independent, publicly traded communications semiconductor companies. While not an initial public offering in the formal sense, the deal will result in a new public company on the American Stock Exchange. Conexant will retain a 20 percent stake in the company. "Semiconductors at War". Let’s look at the potential economic impact of the war on the group due to the military's greater dependence on electronics and "smart" weaponry. The interest is not trivial. In the first Gulf War, approximately 10% of the bombs were "smart", while in the current conflict, about 90% of the bombs the military will drop are in that category. This analyst remembers in the mid-1980s when companies like Integrated Device Technologies, Analog Devices, Microsemi, and Texas Instruments, had anywhere from 25%-50% of their sales into military applications. For a short period of time in the mid-1980s, Microsemi was able to capture the highest pretax margins in the industry by selling the $0.60 diodes with radiation-hardened packages for about $6.00-$8.00. This was the electronic equivalent of the famous hammer the Department of Defense bought for $750. Today, hardly any of our companies even bother breaking out "mil-aero" as a segment. In reviewing available data, Military-Aerospace makes up only about 1.5%-2% of total semiconductor sales. The mil-aero market accounts for under $3 billion in annual semiconductor consumption, and has stayed relatively unchanged for the last couple of years as a percent of the total. There are probably two important reasons for that: 1) Defense spending in a 30-year decline. Over the last thirty years, or so, defense spending as a percent of total U.S. government spending has more than halved, from about 45% in the early 1970s, to 24% in 1990, and currently stands at only 17%. The White House Office of Management and Budget estimates that defense spending will remain flat at the currently level for the next five years. As a result, defense semiconductor growth will grow with the market, at best. 2) Even as electronic warfare has become more important, the cost of prosecuting that warfare has fallen dramatically. Part of the reason is the huge price/performance gains made in recent decades in distributed computing (each cruise missile has its own guidance system). Another part is the military is increasingly using high-performance commercial parts rather than buying their own custom "mil-rel" parts. Products and technologies that were previously built exclusively for the military, such as GPS receivers and laser-based systems, have now entered much larger commercial markets. This has the affect of amortizing development costs over a much wider base. Though there are some signs that Defense electronics spending has picked up incrementally over the last couple of years, overall conclusion is that the impact of electronic warfare on the semiconductor industry is currently small, and will probably remain much smaller than previous historical peaks. Boxmakers . . . Apple PowerBook channel fill and conservative estimates should provide Apple with a buffer against potential war-related weakness during the final month of the quarter. However, the company's 20-25% exposure to K-12 education combined with an abrupt end to PowerBook channel fill concerns us heading into the June quarter. Suspect that consensus June quarter earnings of $0.05 (several pennies above our estimate) may prove aggressive. While the company's $11 in net cash per share and several dollars of real estate provide significant downside protection around $13-14, fear that downward revisions for the June quarter could push the shares back to the low-end of their recent $13-15 trading range. Gateway has already pre-announced a 1st quarter 2003 revenue and earnings disappointment, but did so before the war began. Consider Gateway's shortfall almost entirely company-specific. For more detail regarding our thesis on Gateway, please refer to the 3/18/03 call note entitled Dell's quarter is tracking very much to plan. However, expect April quarter results very much in line with consensus expectations (similar to 4th quarter 2003) and doubt that this will prove sufficient to break the shares out of their two-year trading range of $24-30. Just shy of $29, see little near-term upside in the shares, but reiterate an Outperform rating and $32 twelve-month target. Gateway's recent pre-announcement should be viewed as a net positive for Dell, because 1) Gateway's shortfall provides market share opportunities for Dell, particularly in U.S. consumer, and 2) Gateway's announcement suggests the company has adopted a significantly less aggressive pricing stance in 1st quarter 2003 relative to 4th quarter 2002. While these positives provide a slightly higher degree of comfort with our estimates and consensus for 1st quarter, do not view them as a source of significant upside. As with Dell, Gateway's recent pre-announcement as an opportunity for Hewlett-Packard's PC division. One could argue that Hewlett-Packard, as the PC market share leader in U.S. retail with 50-55% market share, stands to benefit more than Dell from the impending closure of 80 Gateway retail outlets. Also note that consumer, Gateway's largest franchise, represents 35-40% of Hewlett-Packard's total PC revenue versus 20-25% for Dell. Analysts remain comfortable with our estimated 5% quarter over quarter decline in HP's April quarter PC revenue. Hewlett-Packard shares continue to offer the most attractive near-term risk reward in PC & Enterprise Hardware. 2020insight.com