From Briefing.com: What goes up must come down: that is one of the immutable laws of physics and it is the law that has been applied to the highflying tech sector for the past two days despite a batch of supportive developments that has included cheery commentary from Fed Chairman Greenspan on economic prospects and a reassuring earnings report from Intel (INTC 25.31 +1.21).
Those items, arguably, should have been rallying points for the tech sector, but instead, they have served as catalysts for profit taking. That isn't entirely surprising to Briefing.com, which has had its reservations about there being an earnings season rally since the market continued to ramp right through the earnings warning period, emboldened by the lack of any real bombshells from corporate America. With that in mind, it can be said that the market had already discounted the good news.
Thus, despite the favorable developments of late, the tech sector is encountering some resistance as concerns about valuation and its over-extended posture have curbed buying interest. That is certainly understandable, and frankly, overdue, but it isn't disconcerting as there hasn't been a great deal of conviction on the part of sellers. In fact, it can be construed as a healthy development as the market needs to work off some of its excesses to encourage a new wave of sustained buying interest. With that in mind, the path of least resistance for the time being is likely to the downside.
As indicated in our previous comment, though, the earnings news thus far has been supportive in the sense that it has been good enough to feed the bullish mentality that better times do indeed lie ahead. Accordingly, market participants are expected to remain inclined to view interim weakness as a buying opportunity.
To be sure, the initial reaction to IBM's (IBM 86.74 +0.30) earnings report suggests there will be more interim weakness when trading begins on Thursday as IBM was down more than $2 in extended action on Wednesday. Big Blue reported Q2 (Jun) earnings of $0.98 per share, in line with the Reuters Research consensus of $0.98; meanwhile, revenues rose 10.1% year/year to $21.63 bln vs the $21.43 bln consensus. On its conference call, IBM said it's on track to meet analysts' average FY03 (Dec) revenue and profit estimates. That outlook isn't bad by any means, but with IBM up 18% from its March lows, the guidance isn't quite strong enough to excite an over-extended market.-- Patrick J. O'Hare, Briefing.com
5:49PM Wednesday After Hours Price levels are as of 4 pm EST: The Dow started off in positive territory, but quickly sank in the red and the indices traded in a tight range throughout the day. The market was in the process of digesting the releases of the morning and still looking ahead to the close of the market for more earnings reports. The larger reports are listed below. The Dow closed lower by more than 34 points and stands at 9049, the S&P 500 lost 6 points and closed at 994. S&P 500 futures were at 991, two points below fair value. NASDAQ 100 futures were down seven points from fair value at 1286.
E*TRADE (ET 9.37 -0.39) reported in-line EPS of $0.14 per share on revenues of $381 mln. Revenue rose 20.6% yr/yr and was better than the $356.8 mln consensus. ET now sees 2003 pro forma EPS of $0.52-$0.57 ($0.22-$0.27 GAAP), vs consensus of $0.49.
Kraft Foods (KFT 28.65 -2.15) Reported Q2 (Jun) earnings of $0.55 per share, $0.03 worse than the Reuters Research consensus of $0.58. Revenues rose 4.4% yr/yr to $7.84 bln and ahead of the $7.80 bln consensus. KFT attributes earnings shortfall to "acceleration in trade inventory reductions as well as the combined adverse effect of global economic weakness and higher price gaps." KFT issued full-year guidance and sees FY03 EPS of $2.00-$2.05 vs R.R. consensus of $2.13.
C.R. Bard ( BCR 68.41 +0.03), the seller of medical, surgical, diagnostic and patient care devices released results for Q2 (Jun), and had earnings of $0.94 per share, in line with the Reuters Research consensus. Revenues rose 11.6% yr/yr to $354.2 mln and were better than the $348.1 mln consensus.
Like the other brokerages, Raymond James Financial (RJF 36.73 +0.00) had good a solid quarter, earning $0.48 per share, $0.10 better than the Reuters Research consensus. Revenues rose 0.4% yr/yr to $389.8 mln and were above the $349.0 mln consensus estimate.
Advanced Micro (00C 7.32 +0.00) reported Q2 (Jun) loss of $0.54 per share, in line with the Reuters Research consensus. Revenues rose 7.5% yr/yr to $645.3 mln vs the $614.0 mln consensus. Co believes that Q3 sales will "increase." SanDisk (SNDK 50.40 +1.40) reported a blowout quarter with earnings of $0.52 per share, $0.21 better than the Reuters Research consensus. Revenues rose 83.7% year/year to $234.6 mln vs the $186.0 mln consensus.
Apple Computer (AAPL 20.26 +0.39) released earnings of $0.05 per share, $0.02 better than the Reuters Research consensus of $0.03. Revenues rose 8.1% yr/yr to $1.54 bln ahead of the $1.48 bln consensus. AAPL says it expects Q4 revenues to increase from this quarter's $1.545 bln, Q4 Reuters consensus is $1.552 bln, and the Company sees Q4 EPS to increase "slightly" from this quarters $0.05, current Q4 consensus is $0.06.
Progressive (PGR 73.20 +0.00) reported earnings of $1.22 per share, in line with the Reuters Research consensus estimate. Rrevenues rose 29.4% yr/yr to $2.92 bln and better than the $2.88 bln consensus.
For those of you who like earnings reports, get ready for another big day tomorrow. A full slate of companies will report, so be sure.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar and Guidance pages. --Brian Bolan, Briefing.com
5:44PM IBM comments on pricing conditions (IBM) 86.74 +0.30: -- Update -- On Q2 (June) call, IBM says that pricing has begun to ease on a quarter/quarter basis, although it remains down on a year/year basis... IBM is down 2.19 to 84.55 in after hours.
5:30PM On call, IBM says software revenues could be up in double-digits in Q3 (IBM) 86.74 +0.30: -- Update --
5:22PM IBM experienced difficulty in its software division in Q2 (IBM) 86.74 +0.30: -- Update -- On call, IBM said that it continued to see customers delay orders in Q2 (June), and added that the average deal size declined year/year... IBM down 1.74 to 85.00 in after hours
4:53PM IBM reports in line; guides for Y03 (IBM) 86.74 +0.30: Reports Q2 (Jun) earnings of $0.98 per share, in line with the Reuters Research consensus of $0.98; revenues rose 10.1% year/year to $21.63 bln vs the $21.43 bln consensus. On conference call, IBM says it's on track to meet analysts' average FY03 (Dec) revenue and profit estimates. Current Reuters Research estimates for revenue and EPS are $88.23 bln and $4.32, respectively.
4:42PM IBM reaffirms analysts' average FY03 revenue and profit estimates (IBM) 88.74 +0.03: -- Update -- On conference call, IBM says it's on track to meet analysts' average FY03 (Dec) revenue and profit estimates... Current Reuters Research estimates for revenue and EPS are $88.23 bln and $4.32, respectively.
4:40PM Apple Computer beats, guides (AAPL) 19.87 +0.26: Reports Q3 (Jun) earnings of $0.05 per share, $0.02 better than the Reuters Research consensus of $0.03; revenues rose 8.1% year/year to $1.54 bln vs the $1.48 bln consensus. Company says it expects Q4 revenues to increase from this quarter's $1.545 bln, Q4 Reuters consensus is $1.552 bln, sees Q4 EPS to increase "slightly" from this quarters $0.05, current Q4 consensus is $0.06.
4:38PM QLGC trades off $1.40 post-earnings :
4:38PM QLogic beats by $0.02, ex items (QLGC) 51.35 -1.21: Reports Q1 (Jun) earnings of $0.35 per share, ex items, $0.02 better than the Reuters Research consensus of $0.33; revenues rose 27.6% year/year to $126.2 mln vs the $125.5 mln consensus.
4:29PM Pixelworks reports in line, ex items, guides Q3 revs in line with consensus (PXLW) 7.02 -0.11: Reports Q2 (Jun) earnings of $0.04 per share, excluding merger-related expenses and non-cash charges, in line with the Reuters Research consensus of $0.04; revenues rose 32.5% year/year to $32.6 mln vs the $32.3 mln consensus. Co also guides Q3 revenues of $34-36 mln vs estimate of $34.9 mln.
4:29PM Planar Systems beats, guides up (PLNR) 20.74 -0.67: Reports Q3 (Jun) earnings of $0.30 per share, $0.04 better than the Reuters Research consensus of $0.26; revenues rose 8.4% year/year to $62.9 mln vs the $59.5 mln consensus. Company sees Y03 revenues of approx $245 mln, consensus est $237 mln.
4:24PM SanDisk beats by $0.21 (SNDK) 48.70 -0.30: Reports Q2 (Jun) earnings of $0.52 per share, $0.21 better than the Reuters Research consensus of $0.31; revenues rose 83.7% year/year to $234.6 mln vs the $186.0 mln consensus.
4:23PM Advanced Micro reports in-line Q2 (AMD) 7.32 +0.04: Reports Q2 (Jun) loss of $0.54 per share, in line with the Reuters Research consensus of ($0.54); revenues rose 7.5% year/year to $645.3 mln vs the $614.0 mln consensus. Co believes that Q3 sales will "increase."
4:20PM SNDK prelim number looks blowout to upside; watch for action in LEXR :
4:14PM SanDisk files shelf offering covering $500 mln of common stock (SNDK) 48.70 -0.30:
Close Dow -34.38 at 9094.59, S&P -6.33 at 994.09, Nasdaq -5.24 at 1747.97: After a short-lived peek into positive territory at the open, the indices spent the entirety of the session stuck underwater and, with the exception of the first hour, trading in a relatively narrow range near their respective session lows...
While there were plenty of reasons for the market to be pleased today, with multiple upgrades including the likes of Merrill Lynch (MER 53.85 +0.05) at JP Morgan and Whole Foods (WFMI 50.80 +2.18) at Adams Harkness, as well as the better-than-expected earnings by Intel (INTC 25.42 1.32), investors chose to book profits in an extension of yesterday's losses... The fact that the market-mover INTC's upside earnings did not produce a follow-through in the market is noteworthy and could be reflective of investors' apprehension regarding the market's overextended position... As a matter of fact, today's session was witness to more "selling-the-news" reactions as seen in the sell-off of JP Morgan (JPM 36.28 -1.01) following the $0.27 upside in its Q2 earnings...
As a result, the majority of sectors, including the influential semiconductor, software, disk drive, biotech, drug, financial, utility, and telecom groups spent the entirety of the session underwater... The latter two were on the defensive due to concerns over higher interest rates, which surfaced despite Chairman Greenspan's commitment to keeping interest rates low for as long as needed in his presentation to the Senate this morning... While Dr. Greenspan's presentation did not have much of an effect on the market, it's worth mentioning that he again reiterated his belief that the economy is improving and inflation is tame...
This morning's Consumer Price Index report, the most widely-cited inflation indicator, also spoke to that effect with its June reading of 0.2%, in-line with consensus, and flat reading excluding food and energy versus the consensus of 0.1%... Other economic reports included the Business Inventories report (at -0.2% versus flat consensus), as well as Industrial Priduction (at 0.1%) and Capacity Utilization (at 74.3%) reports, both of which checked in in-line with consensus... Elsewhere, the bond market closed along its session highs, with the 10-year note up 16/32 and its yield at 3.92%...NYSE Adv/Dec 1016/2248, Nasdaq Adv/Dec 1361/1810
3:26PM IBM Earnings Preview (IBM) 86.22 -0.22: IBM reports Q2 results tonight after the close, with Reuters Research consensus standing at EPS of $0.98 on $21.43 bln in sales. Bernstein expects the co to slightly exceed consensus on both the top- and bottom-line, yet while they think aggregate IT spending has stabilized, it remains relatively weak and organic growth may be sluggish holding currency constant; in addition, given that the outsourcing mkt's pipeline does not appear strong, they worry that (ex-PwCC) IBM's aggregate signings could be down 5% or more in 2003 YoY, and believes the biggest swing factors for investors to monitor are execution and profitability improvement in Services and Microelectronics. Goldman Sachs expects IBM to meet consensus with a bias to the upside, as currency could add some upside to reported revs; in addition, checks suggest that IBM's hardware unit probably had the strongest relative performance of any of its businesses in the June qtr.
2:56PM QLogic Earnings Preview (QLGC) 51.53 -1.03: QLGC reports after the close -- Reuters Research consensus est is $0.33 for EPS and $125.45 mln for revs... Legg Mason expects revenue to be in-line to slightly ahead of firm's estimates and sees SeptQ guidance cautiously positive, with forecasts of 2-5% sequential rev growth consistent with guidance from prior qtrs. Legg Mason continues to consider QLGC the front runner to win HP's future business providing adapters for Itanium II-based servers running the new version of HP-UX, and thinks may hear about this win as quarterly results are announced; would view this as a moderately positive catalyst. JP Morgan sees co beating firm's est of $0.33 EPS and $125 mln sales. That said, firm continues to rate stock a Neutral based on its high valuation and risks to co's SCSI biz. RBC also expects co to post high-end results, while remaining concerned about valuation... So generally speaking, market expecting good numbers from QLGC, but perception is that they are more than priced in. Looks like potential H-P relationship could be the wild card.
2:30PM EMC Corp cut to Buy at Pacific Crest (EMC) 10.08 -0.99: -- Update -- Pacific Crest downgrades to Buy from Strong Buy following Q2 results; while their turnaround thesis on EMC remains intact, they believe upside to the stock could be limited over the next several months due to uncertainties on the timing and magnitude of hardware margin expansion and the pending Legato acquisition. Target is $15.
11:43AM Silicon Storage downgraded at Adams Harkness (SSTI) 5.10 -0.30: Adams Harkness downgrades to Mkt Perform from Buy based on their belief that pricing in the NOR flash market remains quite challenging, as evidenced by INTC's commentary during its quarterly conference call last night; while they anticipate that SSTI will meet their Q2 ests, rev guidance into the Sept qtr may be more conservative than consensus due to the weak pricing environment and continued questionable end-market demand.
10:43AM Qualcomm chipset inventory poses risk -- SG Cowen 37.37 -0.43: -- Update -- SG Cowen says that Samsung and Motorola (50% of the CDMA mkt) reports last night reinforce firm's price pressure thesis. According to firm, handset sales were down nearly 30% in JunQ, which suggests Qualcomm's (QCOM) handset sales could go to 20 mln from 25 mln in MarQ. This suggests a 3 mln chipset build at time co is supposed to be depleting inventory.
Exar Corp (EXAR) 17.18 -0.26: Before the open, reported Q1 (Jun) earnings of $0.04 per share, $0.01 better than the Reuters Research consensus of $0.03; revenues rose 6.7% year/year to $16.0 mln vs the $14.7 mln consensus. Company sees Q2 EPS of $0.03, in line with consensus, sees revenues of $16 mln vs R.R. consensus estimate $15.5 mln.
Intersil (ISIL) 28.46 +0.87: WR Hambrecht commented on WLAN exit... From a stock price perspective, firm believes that decision to sell its WLAN biz to GlobespanVirata is a positive move from a stock price perspective, as it removes the overhang on stock stemming from an intense competitive environment in WLAN, while creating a pure analog play. Firm notes that it is surprised by the cheap valuation assigned to the biz of 1.5x CY03 sales (notes that last yr RFMD purchased Resonext at 5-8x CY03 sales). WR Hambrecht is suspending its rating and price target pending further detail on the transaction.
Monolithic (MOSY) 11.14 -1.36: AG Edwards downgraded to Hold from Buy based on valuation as well as weak 2H03 visibility in high volume consumer electronic sales.
PLX Tech (PLXT) 5.15 -0.41: After the close, reported Q2 (Jun) loss of $0.05 per share, excluding a $0.04 charge, $0.03 worse than the Reuters Research consensus of ($0.02); revenues rose 11.0% year/year to $8.7 mln vs the $8.6 mln consensus. Co. sees Q3 revenues in the range of $9.5-10.5 mln vs. R.R. consensus of $8.71.
RF Micro Device (RFMD) 6.61 -0.24: Thomas Weisel upgraded to Outperform from Peer Perform on view that fundamentals have realigned and gross margins have turned the corner.
Trikon (TRKN) 4.84 +0.78: Brean Murray upgraded to Buy from Hold, citing recent strength in bookings and a better activity level at TRKN's customers and prospective customers, as foundries pick up volume orders and improve process technologies; firm expects IFX to order several more tools in 2H03 and next year as its volume increases, and believes TRKN is in the later stages of trial production at TSM with its Orion low k CVD tool, and could receive orders before the end of the calendar year. Target is $8.
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