From Briefing.com: Tech shares closed Thursday's session decisely higher after more than a week of choppy trading that pressured the Philadelphia Semiconductor Index (SOXX 496.89 +12.33) down 9.0% from its Dec 1 close. The 18-company SOXX rose 2.5%; there were no decliners. The Briefing.com Tech Index, a composite of over 1000 tech companies, also closed the day up 2.5%. Advancers outnumbered decliners 3.5:1; advancers gained 4.1%, decliners fell 2.6%.
The change in sentiment came after investors got an adrenalin shot from an updated IDC forecast projecting strong consumer demand will continue to drive worldwide PC growth through 2004. IDC is forecasting 15.3% growth in Q4, pushing annual growth of worldwide PC shipments from 8.4% to 11.4%, or over 152MM units valued at over $175B. Unit shipments are expected to grow 11.4% (+4% in dollars) in 2004, up from prior forecast of 10.2%. Stronger than expected Nov Retail Sales data, which came in at 0.9% vs. 0.7% consensus, lent support to the IDC conclusions. Tech shares received yet another boost from CDW Corp (CDWC 57.87 +0.47), which reported that its Nov sales rose 22.9% Y/Y to $382.1MM, down from the 25.8% Y/Y growth in Oct to $490.4MM. The Nov sales data confirmed that the Oct strength within the enterprise market carried through into Nov. CDWC saw double-digit unit volume growth in most product categories, with notebook, server CPU, data storage and printer units jumping 25% Y/Y. Tech investors received a final booster shot in the afternoon in the form of the minutes from the October 28 FOMC meeting, which indicated the Fed did not see material risk of inflation for at least another year, tempering investor fears of a hike in rates.
Thursday's postive trading action and news notwithstanding, we again note that near-term, the direction of greatest resistance for tech shares is higher. Gains will be limited by lingering concerns over a rate increase as well as over valuations that already price in growth and margins expectations that far exceed actual performance. While we remain modestly bullish on tech over the long-term, we stress the need to be highly selective and would continue to protect gains as opportunities permit. Consistent with this view, Briefing.com lowered Technology from Overweight to Market Weight based on valuation. Please visit the Sector View page for the latest thinking on the different sectors. The Sector View for Technology is excerpted below for ease of reference.
The latest market data point to accelerating technology spending in 2004 and 2005, and strong growth in the out-years covering the next decade. On the consumer front, appetite for the latest in digital electronics remains un-satiated and is driving demand for semiconductors. This, in turn, is causing semiconductor fabs to run at high capacity utilization rates, resulting in a stabilization of average selling prices and a building backlog for semiconductor capital equipment. CIOs are warming to the idea of loosening the purse strings for capital expenditures. Industry participants and observers generally forecast enterprise spending on technology in the range of 5%-8% in 2004, accelerating to as high as the low teens in 2005, providing a firm foundation for continuing, accelerating growth. Telecom services carriers are also dialing in to the technology recovery as they migrate legacy to converged VoIP networks, signaling a new cycle in capital investment. This will further strain fab capacity and stands as yet another pillar for a sustained recovery in technology spending. The above three data points describe the developed markets. Globally, economies are improving. Factor in growth from developing Asia, developing EMEA (Europe, Middle East and Africa) and developing Americas, and the elements are in place for a sustained period of growth. In this context, technology companies remain among the best positioned to capitalize on global economic recovery/expansion and are primed to move higher. However, investors need to be highly selective since:
The landscape is not even for all sectors and companies and,
Valuations are very rich (the SOXX is up over 117% since September 2003).
First, different sectors have different sets of market opportunities. In turn, each market segment (product, geographic etc…) within a sector may offer companies a different set of growth and margin opportunities (e.g.: analog vs. DSP within semiconductors; analog for wireless vs. analog for autos; analog for autos within Asia-Pacific vs. analog for autos within North America). A company's positioning and business model can and does have dramatic implications for how well it is able to compete in each segment, and for sustainable growth and margins.
Second, tech shares have already risen substantially over the past 15 months, to the point where valuations often capture expectations for revenue growth and margins expansion that far exceed recent company performance; for some companies, long-term growth and margin expectations that are unsustainable given sector- and company-specific fundamentals. As an example, many semiconductor capital equipment companies are priced for 10-year 40-50% compound annual growth and substantial margins expansion while industry dynamics support rapid 30-40% growth for only two to three years followed by contraction as newly installed capacity comes on stream.
We think investors can minimize downside risk and increase the probability of achieving above-average returns by focusing on companies, with strong competitive profiles and high operating leverage business models, positioned in markets that directly benefit from emerging global secular trends within the digital revolution such as mobility and voice/data network convergence, and/or provide high-demand mission critical solutions for enterprises such as data storage. Accordingly, we would focus on select names within the following groups: semiconductors, wireless electronics, digital content, networking/telecom equipment, telecom services (overseas carriers) and data storage. Please visit the Story Stock page for insights into companies within these sectors. Please visit the Sector View page for the latest thinking on the different sectors.
There has been alot of hype regarding VoIP (voice over Internet Protocol) as of late. The nascent technology holds the promise of lowering the cost of network ownership and network maintenance for carriers. But it also holds the threat of competition from new VoIP companies as well as enterprises lowering demand for long distance calls by porting calls over the companies' data networks. For most of the emerging VoIP service companies, the market for VoIP services is more hype than a viable long-term business opportunity. First, the logistics of providing 24/7 end-to-end connectivity on demand require massive investments in infrastructure and personnel, and may require local carrier agreements to connect to the customer. In addition, FCC regulatory oversight would likely result in the elimination of any cost advantage VoIP companies may have over service carriers. For the enterprise, VoIP technology is a natural evolution of the company network to offer enhanced services as well as a tool for reducing network operating expenses. In this context, the real opportunities in VoIP are equipment vendors and not VoIP service providers. We would focus on Cisco Systems (CSCO 23.93 +0.15) and SpectraLink (SLNK 18.71 +0.57).
After the close, Adobe Systems (ADBE 39.78 +1.70) reported Q4 results and raised Q1 guidance. Verity (VRTY 14.29 +0.43) beat Q2 consensus, guided Q3 above consensus and affirmed F04 guidance.--Ping Yu, Briefing.com
Group % Change Avg % Change Advancers Avg % Change Decliners Ratio Advancers to Decliners P/SG Advancers P/SG Decliners
Philadelphia Semiconductor Index 2.5% 2.7% -0.0% 1.0:0 4.1 n/a
Briefing.com Tech Index(based on a composite of over 1000 tech companies) 2.5% 4.1% -2.6% 3.5:1 1.7 1.4
Audio & Video Equipment 1.3% 2.0% -2.5% 1.3:1 0.4 0.7
Communications Equipment 2.5% 4.5% -3.2% 3.1:1 2.1 1.6
Communications Services 1.9% 3.2% -1.7% 3.2:1 1.1 1.1
Computer Services 1.8% 3.6% -3.4% 3.4:1 1.9 1.9
Computer Sys & Peripherals 3.3% 4.9% -3.9% 5.8:1 1.6 0.9
Electronic Instruments & Controls 2.4% 1.9% -2.5% 1.9:1 1.2 1.5
Scientific & Technical Instruments 1.5% 3.8% -2.9% 2.1:1 1.7 0.8
Semiconductors 3.6% 4.4% -2.3% 8.4:1 3.0 1.7
Software & Programming 2.4% 4.2% -2.2% 3.2:1 1.9 1.5
5:58PM Thursday After Hours prices levels vs. 4 pm ET: The regular session's broad-based advance - in which the Dow closed above the 10,000 mark for the first time since May 2002 - has been extended into the after hours trade, where a number of technology companies have had positive earnings announcements. Presently, the S&P futures, at 1073, are 4 points above fair value, and the Nasdaq 100 futures, at 1424, are also 4 points above fair value.
Adobe Systems (ADBE 41.92 +2.19) reported record revenues in its 4Q03 (Nov) revenue and guided 1Q04 (Feb) forecasts higher - the combination of which has sent shares 5% higher tonight. Q4 EPS and revenues topped the Street and company's expectations, with EPS rising 36% to $0.34 and revenues increasing 22% to $358.6 mln. The software company said it was targeting Q1 EPS of $0.33-0.36 (consensus of $0.32) and revenues of $360-380 mln (consensus of $348.8 mln), and also reaffirmed its FY04 goal of $1.425 bln in revenue (consensus of $1.40 bln) and operating margins of approximately 30%.
Shares of Verity (VRTY15.45 +1.16) have also soared following the developer of infrastructure products better than expected Q2 (Nov) report and encouraging earnings guidance. Verity forecasted FY04 (May) EPS and revenues in line with the Reuters Research consensus estimates, and said that Q3 (Feb) EPS and revenues should be $0.11-0.13 and $29-31 mln, respectively - both of which were above the market's expectation.
Versity (VRST 12.60 +0.10) has also moved higher, only its strength lies with its announcement that it is acquiring Axis Systems, a privately held third-generation simulation technology. Verisity will acquire Axis for approximately $80 mln in cash and stock, with the stock portion representing less than 20% of the software company's outstanding shares. Versity directly competes with CDN and SNPS.
Managed care provider Cigna (00 56.13 +0.04) followed in Aetna's (AET) steps today and announced that it, too, would be extending its flu vaccine coverage to include the nasal-spray flu vaccine, FluMist, for healthy people ages 5-49. Management said 'given the shortage of flu vaccine and in view of the emerging health threat to healthy individuals, Cigna will temporarily cover intranasally administered live attenuated vaccine under existing benefit plans for the remainder of the current flu season.' Shares of MedImmune (MEDI) - the maker of FluMist - have gotten a boost from the news.
Looking ahead, tomorrow's market will digest a number of economic reports. November PPI, the October Trade Balance, and the December preliminary figure to the Michigan Consumer Sentiment survey are among the reports scheduled to be released. For the market, and Briefing.com's, expectations for these pieces of data, be sure to visit the Economic Calendar.
For complete coverage on these, and other developments, be sure to visit Briefing.com's Stock Market Update and Daily Sector Wrap pages. -- Heather Smith, Briefing.com
6:50PM Nasdaq-100 adds eight new names to Index : Nasdaq announces that the following eight stocks will be added to the Nasdaq-100 Index: Marvell (MRVL), Garmin (GRMN), CareerEducation (CECO), Lam Research (LRCX), Level 3 Communications (LVLT), Intersil (ISIL), ATI Technologies (ATYT) and Research in Motion (RIMM)... Being removed from the Nasdaq-100 are ADCT, BRCD, CIEN, ERICY, HGSI, ICOS, MNST, RFMD... The changes will be effective with the market open on Monday, Dec 22.
5:03PM Actel guides Q4 revs in line (ACTL) 24.82 +0.21: Co released its business update for Q4, believes that revenues will grow sequentially in the 1-5% range, apprx $38-40 mln, Reuters estimate is $39 mln.
11:42AM AmTech reits Buy on Credence (CMOS) 12.21 +0.71: American Technology Research reiterates their Buy rating and initiates a 2005 est of $1.02 (well above consensus of $0.79); firm expects an upbeat analyst presentation from the co today as it showcases its full product line in San Jose; also, checks indicate that ATYT could place additional Octet orders in the qtr, and recently two major analog co's have placed orders for RF testers as capacity demand continues to climb. Firm believes there is significant upside on CMOS from these levels, as it is currently trading at a P/E of 11.5x.
Brooks Automation (BRKS) 20.59 +1.03 : Prices 6 mln share follow-on offering at $19.00.
Taiwan Semiconductor Manufacturing (TSM) 10.35 +0.50 : Dow Jones reports that Taiwan Semiconductor Manufacturing (TSM 10.06 +0.21), the world's largest producer of made-to-order chips, Thursday said its fourth quarter "may be slightly better" than the firm advised during its October conference call... Moors and Cabot believes TSM positive preannouncement allays some investor concerns over Nov sales numbers. According to the firm, the best exposed companies in its universe includes the following: AMAT (+0.08), ASYT (-0.02), CYMI (+0.01) and VSEA (+0.31).
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