From Briefing.com: The market had ample reason to rally Tuesday, but it didn't. Why it didn't is anyone's guess. After all, the Retail Sales report for June was stronger than expected, Merrill Lynch (MER) delivered a strong earnings report, and above all, Fed Chairman Greenspan delivered testimony before the House Financial Services Committe that, on balance, was stock market friendly.
In brief, there were some worrisome points drawn out in the Fed Chairman's testimony, like the concern surrounding the economic state of U.S. trading partners and the rise in energy prices, yet Greenspan devoted more of his time to pointing out the various items, like tightening credit spreads, that are serving as early harbingers of an acceleration in economic activity. While the performance of the stock market might not have suggested as much, the pummeling the Treasury market took, the strengthening of the dollar, and the drop in gold prices, all validated the notion that Greenspan's comments were weighted mainly toward the prospects for economic improvement.
The tech sector, in customary fashion, performed better on a relative basis, but the inclination to sell into Greenspan's supportive commentary and the recognition that Intel (INTC 24.10 +0.08) was due to report its Q2 results after Tuesday's close, acted as a restraining factor.
With respect to Intel's report, the chip giant exceeded top- and bottom-line estimates for Q2, posted its strongest quarter of revenue growth since 3Q00, left its 2003 capital spending expectation unchanged at $3.5-3.9 bln, and provided reassuring guidance. Specifically, Intel guided Q3 (Sep) revenues to a range of $6.9-7.5 bln and indicated that gross margins are expected to be 54%, plus or minus a couple of points. The midpoint of its revenue guidance is roughly in-line with the current consensus estimate of $7.17 bln. Additionally, Intel bumped up its FY03 gross margin expectations to 54%, plus or minus a couple of points, from 51%, plus or minus a couple of points, due to higher expected revenue and lower start-up costs. INTC was trading up 1.58 at 25.68 after hours.
Intel's report has overshadowed everything else, including disappointing earnings guidance from Lucent (LU 1.92 -0.06) and Motorola (MOT 9.78 +0.28). Look for Intel's report to get the market started on a solid note on Wednesday.
Regular readers will know that Briefing.com has preached caution for the past several weeks. We certainly don't have any regrets for doing so, as it was a prudent call in light of the precipitous run-up in stock prices that demanded validation. We have seen what we have wanted to see thus far, as the earnings news and guidance, for the most part, has been encouraging. We're still anxious to hear from the likes of IBM (IBM 86.44 +1.02) and Microsoft (MSFT 27.27 -0.13), and we still have our reservations about there being an appreciable earnings season rally, but the earnings news to this point, along with Greenspan's generally upbeat assessment of economic prospects, the broad-based industry leadership, and the fact that participation has been heavier on up days than down days, are positive developments that suggest underlying momentum will remain bullish and that periods of corrective activity in the near-term will continue to be viewed as a buying opportunity.--Patrick J. O'Hare, Briefing.com
7:01PM After Market Movers : Trading higher in extended-hours action are shares of S (+19.44%), INTC (+6.56%) and RFMD (+3.21%). Losing ground in reaction to earnings / guidance are LU (-7.81%), SCHL (-7.77%), PHTN (-6.91%), and ELON (-2.18%).
6:22PM Intel expects some flash recovery in Q3 (Sep) 24.10 +0.08: -- Update -- On call, says there is not a lot of clarity in flash business right now; however, it expects to see some recovery in Q3, but that view is based on an assessment "through a murky crystal ball".. INTC +1.59 at 25.69 after hours
6:18PM Jabil Circuit prices $300 mln Senior Notes (JBL) 25.10 +0.13:
6:13PM Tuesday After Hours price changes vs. 4pm ET levels: After months of relatively uneventful after hours sessions, the earnings floodgates have been unleashed and market-moving companies such as Intel and Motorola have released their June quarterly reports. For the most part, the results have been better than expected, and as a result, the tone of the extended session is bullish. At 1005, the S&P futures are 6 points above fair value, while at 1311, the Nasdaq 100 futures are 15 points above value.
The world's largest chipmaker, Intel (INTC 25.50 +1.40), turned in a solid Q2 (June) report in which EPS grew a whopping 100% to $0.14 from year-ago levels, and revenues increased 8% to $6.82 bln. Both figures topped the Reuters Research consensus estimates of $0.13 and $6.72 bln, respectively. Looking ahead to Q3 (Oct), INTC projected revenue of $6.9-7.5 bln, roughly in line with the consensus expectation of $7.17 bln. Q3 gross margins are expected to to be approximately 54%, plus or minus a couple of points, and above the 50.9% rate achieved in Q2, while FY03 (Dec) capital spending is forecasted at $3.5-3.9 bln. As a result, INTC has spiked 6% in the after hours session, and has taken with it chip equipment makers like AMAT, KLAC, NVLS, and LRCX.
The earnings news and outlook was similarly encouraging for semiconductor company Applied Micro (AMCC 6.79 +0.12). AMCC reported a Q1 (June) net loss of $0.03, a penny ahead of the consensus estimate, on revenues that dropped 32% year/year to $20.5 mln (consensus of $20.1 mln). On its conference call, though, management said it expected Q2 (Sept) net sales to improve 10-12% sequentially, to approximately $22.6-23.0 mln. The latter was above the Reuters Research estimate of $21.1 mln, and thus the stock has lifted 2% in the extended session.
RFMD (00C0 6.97 +0.12) also gave investors another reason to cheer a potential recovery in the semiconductor space. The developer of proprietary radio frequency integrated circuits delivered a Q2 (June) net loss of $0.04, $0.02 better than the consensus estimate, on revenues that increased 27% to $131.5 mln. As for Q3 (Oct), RFMD said it was looking for a net loss of approximately $0.03-0.04, in line with the consensus expectation of a net loss of $0.04.
Motorola (MOT 9.67 -0.12), however, did not have such reassuring words for its own area of the technology sector. After lowering its Q2 (June) outlook twice over the course of the quarter, the communications equipment company slightly beat revised consensus estimates. Despite this, MOT issued Q3 (Oct) guidance that was below consensus estimates. The company sees revenues between $6.3-6.5 bln (consensus of $6.5 bln) and pro-forma EPS of $0.02-0.04 (consensus of $0.05).
Finally, after much talk and anticipation, Sears (S 41.70 +6.72) announced that it has entered into a definitive agreement to sell its credit card business for approximately $32 bln to Citigroup (C 46.39 -0.44), which represents a 10% premium to Sears' $29 bln gross domestic credit card receivables portfolio. S said it expected to complete the sale by the end of 2003, and looks to have $4-4.5 bln in cash, and $1.5 bln in debt, after the deal. Given the money-losing nature of the credit card division, S shares have raced ahead by a remarkable 19% in the after hours session.
For added detail on these, and other developments, be sure to visit Briefing.com's In Play, Earnings Calendar, and Guidance pages. -- Heather Smith, Briefing.com
6:41PM Teradyne beats by $0.02, ex items, guides Q3 below consensus (TER) 18.69 -0.43: Reports Q2 (Jun) pro forma loss of $0.19 per share, excluding ($0.09) in charges related to asset impairments, workforce reductions, and facility closures, $0.02 better than the Reuters Research consensus of ($0.21); revenues rose 7.0% year/year to $331.5 mln vs the $326.3 mln consensus. Co also issues Q3 guidance, sees a loss of $0.11-0.19, vs R.R. consensus of ($0.11) and revs of $310-340 mln vs estimate of $340.8 mln.
6:02PM Intel not seeing signs of economic recovery (INTC) 24.10 +0.08: -- Update -- In response to question, says that it is not seeing signs of economic recovery, a big upgrade cycle, or IT budgets increasing... believes, though, there will be a shift back to normality that has essentially been missing the past two years where second half of year is stronger than first half... INTC +1.15 at 25.25 after hours
5:57PM Intel's architecture business doing well (INTC) 24.10 +0.08: -- Update -- On call, says that its communications businesses are still lagging, but that its architecture business is doing better than expected... INTC +1.23 at 25.33 after hours
5:23PM Applied Micro guides Q2 revenues above consensus estimates (AMCC) 6.67 +0.02: -- Update -- On its conference call, AMCC forecasts Q2 (Sept) revenue growth from Q1 (June) levels of 10-12%, which equates to approximately $22.6-23.0 mln vs the Reuters Research consensus estimate of $21.1 mln... Managment adds that it also looks for Q2 gross margins "to improve.".. AMCC is up $0.06, to $6.73, in the after hours trade.
4:52PM Cadence Design reports in line, guides below consensus (CDN) 13.00 -0.27: Reports Q2 (Jun) earnings of $0.09 per share, in line with the Reuters Research consensus of $0.09; revenues fell 19.8% year/year to $276.4 mln vs the $269.3 mln consensus. Company sees Q3 EPS of $0.11-0.13 vs R.R. consensus of $0.14, on revs of $265-275 mln, consensus is $287 mln; for Y03 CDN sees EPS of $0.48-0.52 vs consensus of $0.52, revenues of $1.09-1.1 bln, consensus is $1.13 bln. Company also announces it will cut 500 jobs and take a $60 mln restructuring charge in Q3.
4:32PM Lucent guides lower for JunQ (LU) 1.92 -0.06: Lucent now expects Q3 (Jun) revenue of $1.97 bln and a loss off $(0.06)-$(0.08) vs Reuters Research consensus of $2.3 bln and a loss of $(0.05)... Also, company "now expects that its return to profitability will occur in fiscal 2004."... The company also said that it used only a modest amount of cash in the third quarter and expects to report an ending balance of $4.9 bln in cash and short-term investments for the quarter... stock at 1.83.
4:22PM AMAT, NVLS edge up on INTC report, capex guidance :
4:11PM RF Micro Device reports, guides inline. (RFMD) 6.81 -0.15: -- Update -- Reports Q1 (Jun) loss of $0.04 per share, $0.02 better than the Reuters Research consensus of ($0.06); revenues rose 26.5% year/year to $131.5 mln vs the $131.8 mln consensus. For Q2 company sees loss of $0.03-0.04 vs R.R. consensus loss of $0.03.
4:10PM Photon Dynamics misses by $0.02; guides for Q4 (PHTN) 28.57 -0.74: Reports Q3 (Jun) loss of $0.21 per share, $0.02 worse than the Reuters Research consensus of ($0.19); revenues rose 20.3% year/year to $18.0 mln vs the $17.1 mln consensus. Co. sees Q4 EPS of a loss of $0.08-0.14 vs. R.R. consensus of loss of $0.06 and Q4 revenues in the range of $19-21 mln vs. R.R. consensus of $20 mln.
4:06PM Motorola beats by $0.01, guides below consensus (MOT) 9.79 +0.29: Reports Q2 (Jun) earnings of $0.01 per share, ex items, $0.01 better than the Reuters Research consensus of $0.00; revenues fell 10.3% year/year to $6.16 bln vs the $6.06 bln consensus. Company sees Q3 pro forma EPS of $0.02-0.04 vs R.R. consensus of $0.05, revs of $6.3-6.5 bln, consensus is $6.5 bln.
4:05PM Applied Micro beats by a penny (AMCC) 6.67 +0.02: Reports Q1 (Jun) pro forma loss of $0.03 per share, $0.01 better than the Reuters Research consensus of ($0.04); revenues fell 32.1% year/year to $20.5 mln vs the $20.1 mln consensus.
3:29PM Motorola Earnings Preview (MOT) 9.75 +0.25: Motorola reports its Q2 after the close today with Reuters Research estimates for EPS of breakeven and revs of $6.06 bln. In JP Morgan's recent coverage initiation, the analyst believes revenues will decline 1.4% sequentially to $6.0 bln for Q2 due to weakness in PCS and SPS. Merrill Lynch believes the co will perform in line with management's guidance with continued weakness going into the Sept quarter as headset inventories are being worked down. The analyst expects 2003 to be back end loaded with 70% of 2003 profits being recorded in Q4.
3:15PM Intel Earnings Preview (INTC) 23.87 -0.16: Intel reports its much anticipated Q2 after the close today with Reuters Research expecting EPS of $0.13 per share and revs of $6.72 bln. Bear Stearns analyst believes the co's revenues will come in sequentially negative at 0.8%. However, the analysts' channel checks suggest better-than-expected PC shipments in the month of June. ThinkEquity believes the microprocessing behemoth will come in at the high end of revised revenue guidance of $6.6-$6.8 bln and guide 2H03 higher. While this may seem like a bullish indicator, the analyst points to Intel and the semi industry not having a lower 2H than 1H for 16 of the last 19 years.
10:47AM Genus Inc -- Small-Cap Profile (GGNS) 3.48 +0.08: Genus (GGNS) is one the stocks showing up on our low-PEG screen today, just one day after it broke out to a new 52-week high. The co makes capital equipment and deposition processes for advanced semiconductor manufacturing used to produce integrated circuits for the data processing, communications, medical, transportation, military and consumer electronics industries. Analysts expect the co to post a profit of $0.03 in 2003, vs a loss of $0.43 last year, and to grow EPS by 533% to $0.19 in 2004 (P/E 18.4x). Mkt cap: $101 mln, float: 28.6 mln shares, avg daily volume: 162k shares, short interest: 4.4%.
10:40AM RTEC/KLAC: New Tool Debate : RTEC outperformed the semi sector yesterday in part due to a rumor that KLAC will not be presenting their competing metal metrology tool at Semicon, despite expectations to the contrary (see the July 1 and July 3 comments in the RTEC archive for more). However, we are hearing from Moors & Cabot that although KLAC will not actually display the new tool, they will be discussing it today, which will likely rekindle concerns that it will have a negative impact on RTEC.
10:01AM MCHP earnings previewed by Merrill Lynch 27.42 +0.27: -- Update -- Merrill Lynch expects MCHP to meet firm's estimates when Q1 earnings are reported, while offering a conservative Q2 forecast of 3% revenue growth qtr/qtr to $167 mln. While considers MCHP a well-diversified company, believes that at 42x CY03 est and 36x CY04 est, stock is fully valued... MCHP is scheduled to report July 17.
9:48AM MIPS Techs started with a Buy at B. Riley; target $4.75 (MIPS) 3.48 +0.16: B. Riley initiates coverage with a Buy rating and $4.75 target; trading at 1.5x cash and 1.4x book, firm feels that the shares are an attractive value; in addition, firm expects new MIPS-based applications and design wins like Sony's new PlayStation Portable, DTV, VoIP, and smart cards to help drive the co's top-line recovery.
Helix Tech (HELX) 16.10 +0.30: AG Edwards raises its target to $20 from $15 due to its reinforced expectation that the semiconductor equipment business is stable; also, firm believes there is a move to seek more attractive valuations than currently found at AMAT, for example, and HELX, with its good balance sheet and strong mgmt, is a prime candidate.
Virage Logic (VIRL) 10.69 +2.25: Adams Harkness upgraded VIRL to Strong Buy from Mkt Perform based on its belief that the co has turned the corner, having likely closed a few major licensing agreements that previously had been pushed out; firm believes these new deals should help build backlog and improve the co's visibility, and it thinks there is a high likelihood that earnings will be revised upward after the co reports Q3 results on July 24; in addition, the stock trades at a dramatic discount to its nearest semi IP competitors, ARTI and MOSY. Target is $13.
Rambus (RMBS) 20.17 +1.27: B. Riley upgraded to Buy from Neutral based on firm's view that RMBS will succeed in overcoming the brunt of the charges that the FTC is bringing against it. At a minimum, firm believes the FTC will be unable to restrict RMBS' right to DDR SDRAM royalties. Estimates that RMBS could soon be in the position to collect as much as $420 mln per year in DDR royalties alone (at the RAND royalty rate of 3.5%). At RMBS' 32% tax rate, this represents $286 mln in after tax cash flow, or $2.71 per share. Firm's new price target of $37.50 is based on a 15x P/E on a $2.50 EPS target.
Marvell Technology (MRVL) 37.75 -1.75: USB Piper Jaffray analyst Ashok Kumar issued comments on the Gigabit Ethernet market: firm believes that INTC will dominate the Gigabit Ethernet segment and that BRCM will likely leverage its WLAN and server chipset portfolio to grow share. Kumar also believes that MRVL remains the loser in this shakeout, and will increasingly depend on a deep cyclical sector and mature segment (HDD) for growth. |
