From Briefing.com: Momentum remained on the side of the tech sector as disappointing earnings pronouncements from the likes of Eastman Kodak (EK 28.77 -3.22), Clorox (CLX 42.29 -2.96) and The New York Times (NYT 45.63 -2.91), left traders inclined to maintain bullish positions. In doing so, they drove the Nasdaq to its third consecutive gain this week and to a new 52-wk closing high. The biotech sector, however, was noticeably absent from today's advance as evidenced by the 3.8% decline in the BTK Index.
Lending to the sector's overall appeal was Oracle's (ORCL 13.42 +0.07) increased bid for PeopleSoft (PSFT 17.93 +0.78) and the resilience of the semiconductor sector in the face of a less-than-scintillating book-to-bill ratio of 0.89 for the month of May. The 3-month average of worldwide bookings of $751 mln in May was down 32% from the yr-ago period, but off only 1.0% from April. Meanwhile, the 3-month average of worldwide billings was $840 mln, which was even with the prior month and down 3.5% from the yr-ago period.
Though the book-to-bill data didn't exactly paint a picture of growth, traders keyed off the understanding that the May report was slightly above the Street estimate of 0.88 and was close enough to April levels to keep alive expectations for cyclical growth in the second half of the year. Supportive comments from Goldman Sachs in that respect, and a Lehman Bros. upgrade of Applied Micro Circuits (AMCC 6.27 +0.05), PMC-Sierra (PMCS 13.33 +0.93) and Vitesse Semiconductor (VTSS 5.62 +0.56) that was based on improving fundamentals, also underpinned the semiconductor stocks.
There is bound to be continued interest in the semiconductor story on Thursday following the earnings report from Micron Technology (MU 13.08 +0.03) after Wednesday's close. The manufacturer of semiconductor memory products posted a loss of $0.36 per share that was significantly wider than the loss of $0.04 per share in the yr-ago period. Reuters Research is telling us that the loss of $0.36 actual is the "most comparable" to their consensus estimate of $0.52, but that "According to some analysts, the EPS numbers were not very meaningful due to the inventory writeoffs and the benefits from the sale of that inventory." Analyst estimates for the quarter ranged from a loss of $0.37 to a loss of $0.61.
As Briefing.com indicated yesterday, though, investors needn't feel compelled to chase the semiconductor rally as the scope of recent gains combined with seasonal patterns suggest some corrective activity is in order over the near-term. In sum, we feel only traders need apply at current levels.-- Patrick J. O'Hare, Briefing.com
6:55PM Micron experiences ASP decline; little solid guidance (MU) 13.08 +0.03: -- Update -- On the call management would not give any hard guidance numbers outside of their expectations that production would see an increase in the low single digits (percentage terms). MU also saw a decrease of 15% in ASP's in the quarter and would not give guidance as to where they saw ASP's headed.
6:13PM Micron earnings update (MU) 13.08 +0.03: -- Update -- Reuters Research is telling us that the loss of $0.36 actual is the "most comparable" to their consensus estimate of $0.52, but that "According to some analysts, the EPS numbers were not very meaningful due to the inventory writeoffs and then benefits from the sale of that inventory."
5:19PM Micron beats by $0.16, ex items (MU) 13.08 +0.03: -- Technical -- Reports Q3 (May) loss of $0.36 per share, however this actuals appears to include multiple charges and gains. Company also provides an "adjusted" net loss number that works out to a loss of $0.56 per share. The Reuters Research consensus is ($0.52), MU's release is not clear as to which actual is comparable to consensus. The range of estimates in this consensus is ($0.37) - ($0.61). We are listening to the conference call and will look to provide more clarity based on management's comments. Revenues fell 5% year/year to $732.7 mln vs the $730 mln consensus.
4:06PM Jabil Circuit beats by a penny; updates guidance (JBL) 24.27 +0.35: Reports Q3 (May) earnings of $0.19 per share, $0.01 better than the Reuters Research consensus of $0.18; revenues rose 43.3% year/year to $1.22 bln vs the $1.22 bln consensus; expects core operating income to "increase sequentially five to ten percent resulting in core earnings per share of $0.19 to $0.21"; expects revenue to "increase sequentially three to seven percent, in a range of $1.25 to $1.3 billion" -- Reuters Research consensus estimates are $0.20 per share and $1.29 bln respectively.
2:34PM RBC would remain on sidelines with SAN switch stocks : RBC Capital says they would remain on the sidelines with respect to investments in the pure-play SAN switch co's due to increasingly intense competition; recent data suggests that CSCO appears to be shifting its sales strategy to gain mkt share, and when combined with its IBM relationship success, CSCO may be disrupting some director revenue at MCDT and elongating high-end sales cycles at BRCD as well; in addition, QLGC's status as the OEM switch vendor to the IBM BladeCenter platform makes them a target, as BRCD appears to be working through the IBM storage group to get a competitive blade offering qualified and sell around the QLGC OEM relationship.
12:59PM Integrated Device runs to resistance (IDTI) 11.55 +0.60: -- Technical -- Stock broke above its week long range today and tested resistance in the 11.50/11.55 area (200 day ema/congestion) before consolidating over the last hour or so just off the high. Is currently back retesting the intraday peak.
11:00AM: As has been the trend of late, traders are using dips as buying opportunities... The Nasdaq has bettered its stance considerably and has pulled into positive territory since the last update... The advance is supported by the networking, computer, software and semiconductor sectors, all of which are now in the green... The resilience of the latter is notable in the face of May's Book-to-Bill ratio of 0.89 (reading below 1 is contractionary)...
This reading is virtually flat with April's reading of 0.90 and means that $89 worth of new orders were received for every $100 of product billed for the month... Admittedly, the semi sector is also being helped by Lehman's upgrade of Vitesse (VTSS 5.61 +0.55), PMC-Sierra (PMCS 13.14 +0.74), and Applied Micro (AMCC 6.35 +0.13) to Equal-Weight from Underweight based on improving fundamentals...NYSE Adv/Dec 998/1974, Nasdaq Adv/Dec 1185/1589
10:36AM Marvell target raised to $36 from $32 at CIBC (MRVL) 32.73 +1.04: The target increase is based on relative valuations and expectations that growth continues in storage and communications businesses. Firm continues to believe that investors remain overly pessimistic towards the GigE controller business.
9:51AM Foundry Ntwks: Buy ahead of quarter -- WR Hambrecht (FDRY) 15.03 +0.16: WR Hambrecht encourages investors to buy shares of Foundry Networks ahead of expected solid June quarter results. Based on firm's most recent checks with sources, firm is becoming increasingly comfortable that Foundry will meet its "high end of the Street" $0.11 EPS on $94.8 million in revenue estimate for the JunQ (consensus $0.10 and $93.14 mln).
9:32AM Adobe Systems: Lackluster NPD data could signal weakness -- Smith Barney (ADBE) 32.15 -0.34: According to firm, ADBE's May revenue results appeared lackluster; believes the month's revenue results could be signaling a relatively weak end to the Q2.
9:31AM Intersil downgraded at JMP (ISIL) 24.55 -0.04: -- Update -- JMP Securities downgrades ISIL to Mkt Perform from Mkt Outperform based on valuation, as the stock is trading near their $25 target.
8:54AM Oracle Call Update (ORCL) 13.35: -- Update -- On call, ORCL says transaction would be immediately accretive for its shareholders and accretive in a year on a GAAP basis. The Co is confident they will prevail with revised price.
7:38AM Oracle survey of PSFT holders suggests $19.50 is the right price (ORCL) 13.35: "In the last few days, Oracle executives have had the opportunity to speak with the holders of a majority of PeopleSoft," commented Oracle CEO Larry Ellison. "Many of those shareholders indicated the prices at which they would tender their shares. Therefore, Oracle is raising its all-cash offer to $19.50 per share."
7:28AM PeopleSoft: Oracle raises bid to $19.50 (PSFT) 17.15: Oracle announces it will raise its cash tender offer for PeopleSoft to $19.50/share, or approx. $6.3 bln. "Oracle remains committed to acquiring PeopleSoft and will not be deterred by management's maneuvers to maintain control of a company they do not own." Oracle still expects the deal to be accretive, excluding the amortization of intangibles.
8:30AM Apple Computer upgraded at Needham (AAPL) 18.19: Needham upgrades to Buy from Hold based on the strength of accelerating iPod sales, a possible rebound in PowerMac sales beginning this fall, and the fact that AAPL is abandoning its long-standing strategy of confining its software to the Mac platform, which will enable the co to target its digital entertainment products and services at the entire mkt. Target is $23.
8:21AM Goldman Sachs comments on Semi Equip Book-to-Bill : May book-to-bill of 0.89 was below the Goldman Sachs 0.91 estimate and slightly above the Street estimate of 0.88. Following the report, Goldman Sachs is reiterating its Attractive coverage view on group and believes that 6-9 month investors should be overweight the group due to increasing signs of cyclical growth beginning in Q3 and still reasonable valuations as per firm's normalized free cash flow based analysis.
8:01AM Intersil WLAN chip selected by 3Com (ISIL) 24.59: Announces that 3Com Corp (COMS) has selected Intersil's PRISM GT Wireless Local Area Networking (WLAN) chip set for their new 3Com OfficeConnect Wireless 11g solution consisting of an access point , gateway and PC card.
7:06AM Early Research Calls : UTSI cut to from Buy to Sell at Deutsche; also cuts MEDI from Buy to Hold on widely expected FluMist approval... ERTS cut to Peer Perform at Bear Stearns... Lehman upgrading VTSS, PMCS, AMCC from Underweight to Equal-Weight on improving fundamentals; also raising price targets on GE, HON,MMM..... Merrill Lynch downgrading LNCR from Buy to Neutral....BofA upgrading DUK from Sell to Neutral; also downgrading BHI from Buy to Neutral..UBS downgrading MAT from Buy to Neutral... JPMorgan initiating coverage on DJ with Underweight saying valuation too rich; also lowering AGN and SSP to Neutral... LEG cut from Neutral to Underperform at CSFB... CNF lowered from Neutral to Underweight at JP Morgan... MCH cut from Outperform to Underperform at Smith Barney... Deutsche Bank reiterating Buy on RHAT with $10 tgt.. Piper Jaffray initiating coverage on SINA with Mkt Perform and $19 tgt... First Albany initiating CTMI with Strong Buy and $25 tgt.
11:22AM Ratings Review - DUK : The analyst community has not been kind to Duke Energy (DUK 20.33 +0.33) in the past of year. According to Briefing.com's Upgrades/Downgrades archive, DUK has been downgraded 16 times for a host of reasons that include uncertainty about the sustainability of the dividend, questions regarding the company's earnings dependability, and concerns about probable debt ratings downgrades. A number of events this week have removed some of the aforementioned overhangs. Fittingly, analyst sentiment has improved somewhat as evidenced by two upgrades of DUK today.
Banc of America upgraded DUK to Neutral from Sell, and JP Morgan upgraded DUK to Neutral from Underweight, both based on a slightly better than expected ratings review from Moody's and DUK's reaffirmation of FY03 (Dec) EPS targets that followed.
Moody cut its rating on Duke Energy to Baa1 from A3 and Duke Capital to Baa1 from A3, and assigned both divisions stable outlooks. Banc of America, for one, was surprised that Duke Energy was not cut by two notches, and that the outlook did not move to negative. Encouraged by Moody's belief that DUK's "credit metrics appear to be solidly investment grade," Banc of America and JP Morgan emphasized that this key uncertainty has been removed from DUK, although potential earnings weakness remains.
In light of such words, Banc of America and JP Morgan's upgrades were certainly not ringing endorsements of the stock, but merely an admission that there are less negative catalysts that could pressure DUK in the near-term. The provider of electric and natural gas in North Carolina and South Carolina entered 2003 with an aggressive plan aimed at rebuilding shareholder confidence following 2002's probe into its activities in the California energy markets, and reports of 'inappropriate accounting' and 'improper trading.' DUK has scaled back its exposure to the merchant energy business, and recalibrated the level of risk it assumes in trading activities. DUK also turned in a better than expected Q1 (Mar) report, and maintained its FY03 EPS forecast of $1.36-1.60 and previously stated annual dividend of $1.10 per share.
Briefing.com, like Banc of America and JP Morgan, is similarly encouraged by DUK's efforts year-to-date, but retains a somewhat cautious stance considering the early stages of DUK's turnaround initiatives and the fact that Standard & Poor's kept the outlook of Duke Energy, Capital, and Trading and Market at negative late last night. Nonetheless, DUK's reassuring guidance and the conclusion of Moody's three-month ratings review have, understandably, helped boost DUK's stock as they are anecdotal signs that there will be an easing of the bearish sentiment that started DUK on a downward spiral beginning in April 2002. --Heather Smith, Briefing.com
11:01AM Ahead of the Curve: Oracle (ORCL) 18.22 +1.07 (+6%) Larry gets tough. The bid for PeopleSoft is increased to $19.50 and he sues the board. Peoplesoft CEO Craig Conway was originally successful in convincing the media that the Oracle bid was simply intended to frustrate the Peoplesoft bid for J.D. Edwards and was not a serious bid for the company. (Craig - give your PR guy a raise.)
The real problem for all of these guys is that the market has matured. The great technology boom in enterprise is over - possibly for a long time. It is now time to put up the fences and settle down. That means establishing competitive positions in the customer base. Oracle, which is dominant at the tools level of software, is not dominant at all at the application level. To remain a major player in the enterprise market - the only really profitable software market - you must have an essential application. Oracle has tried to grow into the this level in various ways over the past three years - but with little success. They have tried business decision tools, supply chain management, CRM, application servers (ASP), and even IT infrastructure outsourcing. All are designed to get into the enterprise as an irreplaceable component of the enterprise business. That is the only long term future for software vendors. Databases are replaceable - it will get easier over time - and Larry's great fear is that they migrate to - we can imagine Larry choking on the words - to Bill.
That means the battle for dominance at the application level is the most important issue for Oracle - and all software vendors. The king of this market is SAP. They run the financials for most major enterprises in America. They have tried to integrate HR services into their system, with only minimal success. PeopleSoft dominates that arena. SAP has also tried, with some success, to integrate CRM into their application, with little success. Seibel dominates that arena.
Oracle's bid is real. It is essential. If Larry fails at getting PeopleSoft, which is very possible, he will be even more motivated to acquire an application level player. The most likely candidate is Seibel Systems (00C0). Although the personalities are very difficult in this match, the collapse of the CRM market (down 25% in the past twelve months), might make Tom Seibel more interested in selling. The following table (which appeared in the Gartner Group press release of June 12) outlines market share for the CRM market.Company Stock 2002 Market Share 2001 Market Share
Seibel SEBL 24.9 28.5
SAP SAP 15.9 10.9
PeopleSoft PSFT 4.3 3.9
Oracle ORCL 4.3 5.5
Amdocs (Clarify division) DOX 3.2 3.8
Larry has to do something or SAP will own everything in five years. The Ahead of the Curve approach would never recommend a position in Seibel Systems based on fundamentals, because the market is weakening. But the secular trend of consolidation can be powerful. Seibel is clearly the next best target for Oracle if Larry fails at PeopleSoft. A speculative position in Seibel based on this premise might be warranted, although it should be noted that this entire battle for PeopleSoft has not sent the price anywhere near its 52 week high. - Robert V. Green, Briefing.com
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