Updated: 14-May-03 General Commentary - No change. Though the indices edged lower in orderly trading, techs continued to exhibit impressive relative strength. In light of recent gains, most on street expecting a more sizable correction. Fact that we haven't seen much of a pullback, lends credence to view that sidelined investors using any dips to (re)enter long side for fear of falling too far behind.
This shift in sentiment is what's largely behind the sector's resilience. Investors no longer viewing tech rallies as selling opportunity. Why? Maybe it's because all the sellers were washed out over the past few years. Maybe it's because earnings in Q1 were up about 12% yoy. Or maybe, its because investors are expecting end user demand to accelerate in the second half of the year. Whatever the reasons (we suspect it is at least some combination of the above), there's no denying that sentiment surrounding the sector is much improved.
Don't believe us. Just look at the list of stocks making new 52-wk highs. You will see a growing number of tech names on that list. That's a clear sign of improved momentum and bullish sentiment.
As we alluded to on this page yesterday, many large investors entered the year underweighted in tech. Most were slow to warm to the sector given all the false starts over the past few years. But now that the sector has held up in the face of bad news; now that earnings are trending higher; and now that technicals look better than the have in years, the so-called smart money is so afraid of looking stupid that it's rushing out to buy tech on any dip - even if there's no tangible evidence of a rebound in demand and even if the earnings outlook for the second half remains murky.
While it's true that the sector and the market are overextended, as long as big money players are playing catch-up, it might not matter. Against such a backdrop pullbacks will be shallow and short-lived. So if you're waiting to get your favorite tech stock on a pullback, don't wait too long.
Robert Walberg, Briefing.com
5:55PM Tuesday After Hours price changes vs 4pm ET levels: Traders have used a batch of lackluster earnings pronouncements as an excuse to take profits in tonight's after hours session. Presently, the S&P futures, at 941, are 1 point below fair value while the Nasdaq 100 futures, at 1152, are 5 points below fair value.
Specifically, traders have sold into Applied Materials' (AMAT 15.20 -0.36) 30% gains off its early February lows following the company's better than expected Q2 (Apr) report and disappointing Q3 (July) guidance. The world's largest supplier of wafer fabrication solutions exceeded the Q2 Reuters Research EPS consensus estimate of $0.02 by a penny on revenues that declined 4% to $1.11 bln (consensus of $1.10 bln). On its conference call, however, AMAT said it expects Q3 net sales to be at or below Q2 levels and EPS to be $0.03 or $0.04 as compared to the consensus expectations of $1.17 bln and $0.04, respectively. As a result, shares of semiconductor equipment names like KLAC, MU, NVLS have declined in the extended session.
Elsewhere, Network Appliance (00C0 15.66 -1.07) has fallen prone to similar profit-taking following the company's in line Q4 (Apr) report and Q1 (July) guidance. The supplier of enterprise network storage and data management solutions showed an 18% increase in revenues - to $241.6 mln - and a 75% in EPS - to $0.07. On its conference call, NTAP said the typically challenging 1Q04 should see EPS check in at $0.07 and revenue grow of 2-5% sequentially (implying a range of $246.4-253.7 mln). The Reuters Research consensus estimates stand at $0.07 and $244.5 mln, respectively.
Finally, Computer Sciences (CSC 33.63 -0.41) reported Q4 (Mar) EPS of $0.95, excluding a $0.02 charge related to the DynCorp acquisition, that was a penny ahead of the Reuters Research estimate. As for Q1 (June), CSC currently anticipates revenues to be $14.3-14.7 bln and EPS to be $2.78-2.88, both of which are in line with consensus estimates.
5:28PM Network Appliance guides in-line with consensus (NTAP) 15.51 -1.22: -- Update -- On call, company says the typically challenging 1Q04 will see EPS of $0.07 and revenue growth of 2-5% sequentially (implying a revenue range of $246.4-253.7 mln). The Reuters Research consensus is EPS of $0.07 on revenues of $244.5 mln.
3:30PM Network Appliance Earnings Preview (NTAP) 16.57 +0.19: Network Appliance reports fiscal Q4 results today after the close, with consensus expectations standing at $0.07 in EPS and $238.8 mln in sales. In a preview of the qtr, Lehman believes NTAP will come in at the high-end of its guidance for EPS of $0.06-$0.07 on 2-6% sequential rev growth ($233-$242 mln). Firm believes the co will guide for sequential rev growth of 2-5% in Q1 (as they have done for the last several quarters), and consequently projects EPS of $0.08 and 2% sequential rev growth to $244 mln (vs consensus of $0.07 and $244.5 mln). In addition, firm will continue to monitor NTAP's finished good inventory levels, which have risen markedly in the last few quarters, although mgmt has indicated that the rise in inventories is associated primarily with the launch of several new products in recent quarters. Finally, firm will be watching for updates on new products and the competition (specifically on EMC-MSFT's new Windows-powered NAS device).
5:08PM Applied Materials (AMAT) 15.56 -0.16: -- Update -- On the conference call, management stated that they expect orders to be flat in the next quarter, and sales to be at or below 2Q levels. EPS of guidance was $0.03 to $0.04 per share, consensus for next quarter is currently at $0.04 per share. Wall Street will likely not look too favorably on the announced .88 book-to-bill ratio, at least one analyst had estimated .91 for the quarter.
4:08PM Applied Materials beats by $0.01, ex items (AMAT) 15.54 -0.18: Reports Q2 (Apr) earnings of $0.03 per share, ex items, $0.01 better than the Reuters Research consensus of $0.02; revenues fell 4.3% year/year to $1.11 bln vs the $1.10 bln consensus. $0.03 ongoing EPS actual excludes charges taken as part of reallignment plan.
3:09PM Applied Materials Earnings Preview (AMAT) 15.54 -0.18: AMAT is due to release after the close. Wall Street looking for EPS of $0.02 on revs of $1.1 bln. CIBC believes that with expectations significantly tempered, there is room for execution upside as AMAT leverages easy Q/Q comps, accelerating cost efficiency and renewed share momentum. Fahnestock (which rates stock a Sell) sees continued pressure on the stock on the anticipated guidance for disappointing revs and an uncertain outlook. Firm believes that continuing uncertainty will ultimately create a buying opportunity in coming months near the $10 level.
11:15AM Sanmina-SCI spikes to 10 month high (SANM) 5.54 +0.18: -- Technical -- Sharp intraday jump leaves SANM just shy of the 10 month high set last week at 5.60. Next resistance if able to take out this barrier is in the 5.76/5.80 area.
11:13AM Drive stocks run away from fundamentals -- Hoefer & Arnett : A Hoefer & Arnett analyst cites concerns over the recent run up in drive stocks. In his morning comments, the analyst suggests recent price increases of WDC (+4.5%), MXO (+0.9%) and STX (+4.0%) can be attributed to technicals and favorable press coverage as opposed to fundamentals. In addition, specific concerns mentioned are inventories and the potential SARS effect on Asian inventory levels. In the interim, the firm would not be buying drive stocks beyond their current levels but expects higher prices by the end of the year.
9:45AM Bear Stearns reduces equity asset allocation : Bear Stearns lowers its recommended asset allocation to equities from 65% to 60% and increases its cash weighting from 10% to 15%. Continues to believe that 2003 will prove to be a better year for equities, but firm's valuation model argues that much of the good news to come for stocks is already priced in. Technical indicators of overbought/oversold readings mostly argue for a coming pullback in the stock market. Firm initiates an S&P 500 target of 1025 for yr-end 2004 (implies 9% increase by yr-end 2004).
8:44AM Marvell: Much of the good news priced-in -- CIBC (MRVL) 27.40: Firm fears that any positive news regarding the outlook may be viewed as "expected," and more important, "priced in." Firm would wait until after the earnings report before getting more aggressive.
Intel (INTC) 19.82 -0.17: UBS ups price target to $24 from $22, reiterates Buy... Separately, the Wall Street Journal reports Intel has discovered a "glitch" in its Itanium 2 microprocessor. The problem causes computers to crash under certain circumstances and effects only some of its chips manufactured since its introduction last July.
Merrill downgrades Semis: ISIL, MXIM, NVDA, SMTC, ATYT : ISIL, MXIM, NVDA, SMTC, ATYT (OPENX) : Merrill Lynch downgrades Semiconductor names ISIL, MXIM, NVDA, SMTC and ATYT to Neutral from Buy. Firm does not think that business conditions and valuation merit continued Buy ratings. According to firm, the disconnect between what it is hearing from semi companies and their customers continues. Firm notes that it does not think the risk of a major, multi-quarter selloff exists.
LTX Corp (LTXX) 7.55 +0.22: Reports Q3 (Apr) loss of $0.22 per share, ex items, $0.02 better than the Reuters Research consensus of ($0.24); revenues rose 2.7% year/year to $28.8 mln vs the $28.5 mln consensus. Company sees Q4 (Jul) earnings to be a loss in the range of ($0.33) to ($0.36), this does not exclude any one-time charges, and is not comparable to the Reuters Research consensus. Company sees Q4 (Jul) revenues in the range of $30-33 mln vs. the Reuters Research consensus of $32 mln.
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