From Briefing.com: The tech sector started Tuesday's session with an upward bias, capitalizing off the lack of any deleterious earnings news, some bargain hunting interest, and a Lehman Bros. upgrade of the semiconductor equipment industry to Positive from Neutral. There wasn't much traction behind the initial buying efforts, though, as the Nasdaq was clinging only to a single-digit gain before the news on UDAY and QUSAY got things revved up.
For the record, UDAY and QUSAY aren't the stock symbols for some highflying Chinese Internet portal companies that merged. In actuality, they are the sons of Saddam Hussein and the news of their death today, at the hands of U.S. troops, prompted a feel-good buzz on Wall Street. That, at least, is how the media is prone to report it. As for Briefing.com, we'll acknowledge that the report of their death did help the market's mood, but we'll also argue that too much credit was given to that report for the market's advance.
Yes, we know their death is good from a psychological standpoint, but lest one forget, the market didn't seem to have any problem rallying when those two jerks were alive. If anything, the market's response to this news indicated that bullish sentiment continues to prevail. The UDAY and QUSAY news simply helped revive it. Keep in mind, too, that there were several other fortuitous developments for market participants on Tuesday. In particular, the bond market improved, driving Treasury yields lower, oil prices dropped below $30/bbl, and the Nasdaq and S&P both saw renewed buying interest after violating/flirting with notable support levels.
For the Nasdaq, the opening buying interest lifted it back above the June trading range top of 1686/1684 - a level that was successfully defended when early buying efforts started to wane. The S&P 500, meanwhile, perked up with a re-test of its 50-day simple moving average (currently 976.32). The successful re-tests for both the Nasdaq and S&P, we would add, occcurred before the UDAY and QUSAY news hit the wires.
Speaking of hitting the wires, there were a bevy of earnings reports after Tuesday's close. The technology sector was duly represented with the likes of Amazon.com (AMZN 34.87 -0.46), Amgen (AMGN 68.93 -0.15), Sun Microsystems (SUNW 4.77 +0.21), Broadcom (BRCM 26.53 +1.36), and Siebel Systems (SEBL 9.22 +0.29) checking in with their results. There were plenty of others, but the initial reaction in the futures market was positive, so it is safe to say that, in aggregate, the market wasn't too bothered by what it heard on the earnings front.
Amgen and Amazon.com are apt to receive a good deal of credit for what is expected at this juncture to be an early bullish bias on Wednesday, as each company surpassed top-and bottom-line expectations for Q2 (Jun) and provided guidance for subsequent periods that is above current consensus estimates. The earnings lineup on Wednesday is remarkably heavy. Key names to watch include AOL Time Warner (AOL) and Lucent (LU), which report before the start of trading, and EDS (EDS), Electronic Arts (ERTS), Lam Research (LRCX), Qualcomm (QCOM), STMicroelectonics (STM), and Symantec (SYMC), all of which report after the close.
Commentary from Fed officials will also be a focal point on Wednesday as Fed Governor Bernanke is scheduled to speak on the topic of inflation at 11:00 ET while Dallas Fed President McTeer will talk about the U.S. economy at 13:00 ET. Bernanke's commentary should be of added interest as he is considered to be a leading contender to succeed Alan Greenspan as Fed Chairman.
For further detail on earnings news, be sure to visit Briefing.com's In Play, Earnings Calendar, and Guidance pages.--- Patrick J. O'Hare, Briefing.com
6:24PM Tuesday After Hours price changes vs 4pm ET levels: The positive bias of the regular session has carried over into the after hours session, where traders have dismissed a Q4 (June) earnings miss by Sun Microsystems (SUNW 4.32 -0.45). Encouraging June quarter earnings reports from the likes of Amazon.com (AMZN 36.92 +2.05), Amgen (00C0 70.20 +1.27), Broadcom (BRCM 25.98 -0.55), and Siebel Systems (SEBL 9.30 +0.08) have contributed to the positive tone of trading. Presently, the S&P futures, at 989, are 2 points above fair value, and the Nasdaq 100 futures, at 1265, are 6 points above fair value.
To begin, SUNW has tumbled 9% after falling short of the Reuters Research Q4 (June) EPS estimate of $0.02 by a penny. Revenues fell 13% to $2.98 bln against the $3.06 bln consensus estimate. One bright spot, however, was a 2.4% increase in total gross margins as a percent of revenues to 43.7%.
Elsewhere, SEBL met the revised Reuters Research Q2 (June) EPS estimate of $0.02 after issuing guidance that was below the consensus expectation on July 3. Revenues of the provider of eBusiness applications software dropped 18% to $333.3 mln. Related companies of SEBL include the likes of BEAS, INTU, ORCL, and PSFT.
In the semiconductor space, BRCM topped the consensus bottom-line forecast by a penny on Q2 (June) EPS that grew to $0.10, excluding charges, from $0.06 in the year-ago period. Net revenues, meanwhile, increased 15% to $377.9 mln. During its conference call, BRCM said it saw Q3 (Sept) revenues at $400-410 mln, above the Reuters Research estimate of $389.7 mln, and added that gross margins should be at the same level as Q2.
On-line retailer AMZN, though, has received a solid bid following its move to handily surpass consensus estimates in its Q2 (June) report, and Q3 (Sept) and FY03 (Dec) guidance. Specifically, AMZN beat the Q2 consensus estimate with EPS of $0.06 with pro forma net income of $0.10 per share. As for Q3 and FY03, AMZN now projects Q3 revenue growth of 26-35%, to $1.075-1.15 bln (consensus of $1.026 bln), and FY03 sales growth of 25-30%, to $4.9-5.1 bln (consensus of $4.80 bln). CEO Jeff Bezos credited the company's lower prices and free shipping for much of the growth.
Finally, leading biotech player AMGN showed impressive growth across most product lines in its Q2 (June) report. EPS increased 29% and topped the Reuters Research of $0.46 by $0.03. Management then went on to raise its FY03 (Dec) EPS outlook to $1.85-1.95 from $1.80-1.90 (consensus of $1.86) and revenue projection to $8.0-8.5 bln from $7.7-8.2 bln (consensus of $7.94 bln). Shares have responded accordingly, and lifted 2% and taken with them competitors like DNA, GILD, and HGSI.
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
5:22PM MKS Instruments beats by $0.02, guides in line (MKSI) 22.85 +2.02: Reports Q2 (Jun) loss of $0.04 per share, $0.02 better than the Reuters Research consensus of ($0.06); revenues fell 5.5% year/year to $81.2 mln vs the $74.4 mln consensus. Company sees Q3 pro forma loss of $0.01-0.06 vs consensus of a loss of $0.02.
5:11PM BRCM Call Update (BRCM) : The Co guides Q3 revs in the range of $400 mln to as high as $410 mln vs. Reuters Research consensus of $389.7 mln; gross margins should be at the same level as Q2. In addition, 27% of sales were from its emerging businesses, which is an increase from 25% in its previous quarter.
5:07PM Linear Tech beats by a penny (LLTC) 35.16 +1.00: Reports Q4 (Jun) earnings of $0.21 per share, $0.01 better than the Reuters Research consensus of $0.20; revenues rose 17.8% year/year to $165.8 mln vs the $163.7 mln consensus. Co expects "low single digit growth in sales and profits" in the Sept. qtr which they say is "in line" with LLTC's "normal summer quarter patterns."
4:54PM Westell Tech reports in-line EPS, revs light, maintains guidance (WSTL) 10.89 +0.59: Reports Q1 (Jun) earnings of $0.07 per share, in line with the Reuters Research consensus of $0.07; revenues rose 11.0% year/year to $55.3 mln vs the $56.1 mln consensus. Co maintains Q2 guidance of $0.06-$0.07 in EPS on $53-$56 mln in sales.
4:52PM Ascential beats by $0.02 (ASCL) 17.09 +0.49: Reports Q2 (Jun) earnings of $0.05 per share, $0.02 better than the Reuters Research consensus of $0.03; revenues rose 42.8% year/year to $39.9 mln vs the $35.8 mln consensus.
4:26PM Vitesse Semi reports in-line Q3 results (VTSS) 5.75 +0.10: -- Update -- Reports Q3 (Jun) loss of $0.04 per share, in line with the Reuters Research consensus of ($0.04); revenues rose 11.1% year/year to $43.2 mln vs the $43.2 mln consensus.
4:21PM Oak Tech beats by $0.01 (OAKT) 7.29 +0.14: Reports Q4 (Jun) pro forma loss of $0.04 per share, $0.01 better than the Reuters Research consensus of ($0.05); revenues fell 37% year/year to $22.0 mln vs the $21.7 mln consensus.
4:21PM Cymer beats by $0.03, offers Q3 revenue guidance (CYMI) 35.50 +2.25: Reports Q2 (Jun) loss of $0.15 per share, $0.03 better than the Reuters Research consensus of ($0.18); revenues fell 15.3% year/year to $62.4 mln vs the $59.6 mln consensus. For Q3, co sees revenues "relatively flat" with Q2, plus or minus a few percentage points (consensus $58.66 mln). Does not expect industry to experience robust recovery until 2004.
4:21PM Elec For Imaging beats by $0.02, ex items; guides for Q3 & Q4 (EFII) 20.37 +0.63: Reports Q2 (Jun) earnings of $0.17 per share, $0.02 better than the Reuters Research consensus of $0.15; revenues rose 5.7% year/year to $88.7 mln vs the $88.1 mln consensus. Co. sees Q3 & Q4 pro forma EPS of $0.20-0.21, R.R. consensus 0.21 and $0.19-0.20, R.R. consensus of $0.21, respectively. Q3 & Q4 revenues are in the range of $97-98.5 mln, R.R. consensus $96.3 mln and $102-104.5 mln, R.R. consensus $94.2 mln, respectively.
4:15PM Storage Tech beats by $0.03 (STK) 26.50 +0.07: Reports Q2 (Jun) earnings of $0.27 per share, $0.03 better than the Reuters Research consensus of $0.24; revenues rose 7.2% year/year to $527.3 mln vs the $512.8 mln consensus.
4:12PM Broadcom beats by a penny (BRCM) 26.53 +1.36: Reports Q2 (Jun) earnings of $0.10 per share, $0.01 better than the Reuters Research consensus of $0.09; revenues rose 46.4% year/year to $377.9 mln vs the $370.5 mln consensus.
4:12PM Sun Microsystems pro forma actual $0.01 (SUNW) 4.77 +0.21: Reports Q4 (Jun) earnings of breakeven, however, in income statement, company reports "net income excluding special items per common share basic and diluted" of $0.01 per share, only $0.01 worse than the Reuters Research consensus of $0.02; revenues fell 12.8% year/year to $2.98 bln vs the $3.06 bln consensus.
4:04PM KOMG prelim $0.19, 3 cents ahead :
4:04PM Amazon prelim $0.10 vs. consensus of $0.06 34.70 -0.63:
4:03PM Coherent beats by $0.02 (COHR) 24.42 +1.02: Reports Q3 (Jun) loss of $0.01 per share, $0.02 better than the Reuters Research consensus of ($0.03); revenues rose 3.4% year/year to $99.2 mln vs the $99.7 mln consensus.
4:01PM AMGN prelim $0.49, 3 cents ahead :
Close Dow +61.76 at 9,158.45, S&P +9.31 at 988.11, Nasdaq +24.61 at 1,706.02: The death of Saddam Hussein's two sons helped the stock indices post gains across the board...a modest up open quickly gave way to continued profit-taking such as occurred yesterday...the Dow and S&P quickly sank into the red...the Nasdaq held up better, helped by an upgrade to the semiconductor equipment maker sector by Lehman...then came word from Iraq that Saddam's sons were probably either captured or killed...that proved the stimulus stocks needed to break the lethargy that had set in and the indices all went solidly positive...
a brief scare occurred on news of a fire in the Eiffel tower, but it proved unrelated to global politics...in the afternoon Wells Fargo (WFC ) helped banks keep up their leadership role, announcing a 50% increase in their dividend...earnings reports this morning were solid if not particularly noteworthy, although the absence of any big downward earnings surprises or warnings on future earnings was a positive...after the close today and tomorrow morning come another slew of reports, including Amazon and Sun Microsystems...volume was moderate and the tone remained cautious...the news from Iraq will probably only provide temporary support...
bonds were up for a change, helped by lower oil prices on the news from Iraq...NYSE Adv/Dec 1859/1422, Nasdaq Adv/Dec 2072/1079
3:37PM Interdigital Comm and Nokia enter arbitration (IDCC) 23.64 +0.10: Co announces that Nokia Corp (NOK) has requested binding arbitration regarding Nokia's royalty payment obligations for its worldwide sales of 2G GSM/TDMA (2G) and 2.5G GSM/GPRS/TDMA (2.5G) products under the existing patent license agreement with InterDigital Technology Corporation (ITC), a wholly-owned subsidiary of InterDigital Communications Corp.
3:36PM Qusay and Uday confirmed killed in Mosul raid :
3:25PM Broadcom Earnings Preview (BRCM) 26.44 +1.27: -- Update -- Broadcom reports its Q2 after the close today with Reuters Research consensus earnings of $0.09 per share and revs of $370.5 mln. Despite the expectation of impressive results for Q2, CIBC has somewhat of a cautious tone going into the call given the Serverworks division and channel checks suggesting a potential threat by INTC (the division is approximately 20% of sales). A.G. Edwards would not be surprised to see co beat firm's top and bottom line estimates (which are below consensus at $0.08 and $368 mln). However, the firm is also cautious on the co's shares given current prices and end market visibility needing to come more in line with current valuations.
3:13PM Amazon.com Earnings Preview (AMZN) 34.51 -0.82: Amazon.com is scheduled to report Q2 results tonight after the close, with consensus standing at $0.06 in EPS and $1.02 bln in sales. JP Morgan expects the co to report rev towards the low- to mid-end of its guidance of $1.0-1.05 bln, and to exceed their EPS est of $0.05 driven by foreign exchange benefit, cost controls, and higher 3rd party sales (which carry a higher margin); firm says that industry data indicates AMZN's North American biz appears weaker than their est of $667 mln (+14% YoY, -5% QoQ), and believes that North America could be down by as much as 8-10% sequentially; on the other hand, firm says industry data indicates that int'l sales are tracking ahead of their est of $343 mln (+56% YoY, -9% QoQ), and thinks that upside to their est will primarily be driven by foreign exchange benefit; firm expects the co will provide conservative guidance headed into the seasonally slower Q3 (consensus is for $0.07 and $1.03 bln).
3:04PM QLGC follow-up 45.62 -1.58: Specifics of QLGC decline today appear to be disappointing hard disk drive shipment data released today by Fujitsu (a top QLGC customer). CSFB believes these results have already largely been reflected in QLGC's business, as co reported results last week.
2:49PM Wells Fargo increases dividend by 50% (WFC) 52.00 +0.76: The co approved a 50% increase in the quarterly common stock dividend to $0.45, up from $0.30; WFC is now targeting a dividend payout at 40-50% of earnings.
12:38PM Ratings Briefing - Chip Equipment : Lehman Brothers (LEH) is having an impact on the market today and not just because it announced plans to acquire asset management firm Neuberger Berman (NEU). On top of that piece of news, it has also drummed up investor interest with an upgrade of its sector weighting on the semiconductor capital equipment industry to Positive from Neutral.
The change reflects the firm's view that: (1) the longest and deepest semi equipment downturn in history is gradually ending and (2) the secular prospects for the industry and for individual companies are substantially better than previously believed. Lehman Bros. noted that it hasn't expected - and still isn't expecting - a hockey stick recovery in 2H03. Rather, it thinks prospects for 2004-06 are compelling and it expects those prospects to be reflected in the stocks early in the upcycle.
Strikingly, Lehman Bros. acknowledged in its note that its upgrade of the industry was likely to invite criticism that its call is either too late or too early. It was right.
It certainly seems late when taking into account that semiconductor equipment prices have appreciated 80.5% since Oct. 8, 2002. It seems too early considering there have been few signs of a pickup in end demand that would validate the scope of the recent rally. That's not to say there haven't been anecdotal signs of improvement, but rather, that the stocks have gotten ahead of themselves, in Briefing.com's estimation, in discounting the pace and timing of a recovery. Arguably, the stocks are already priced at levels that discount the compelling prospects Lehman Bros. speaks of in 2004-06.
Lehman Bros. isn't bothered by the latter assessment, however, as it feels the semiconductor equipment companies have substantial operating leverage that will enable them to reach, or exceed, prior peak margins in the upcycle. Furthermore, it believes the expectation of future earnings at levels that meet, or exceed, prior peak earnings, will provide upside share price opportunity from here.
The market has certainly found favor in the call from Lehman Bros. as the semiconductor equipment industry is a leader of the broad market advance. Lehman Bros.' viewpoint, of course, carries a good deal of influence with the market. That doesn't mean, though, that we have to accept it as gospel... and we don't. Call us heathens if you will, but we continue to believe there is a real disconnect between stock prices and business prospects for the semiconductor industry.-- Patrick J. O'Hare, Briefing.com
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