From Briefing.com: Strong results from Intel (INTC 33.06 -0.33), IBM (IBM 94.02 +3.71), Teradyne (TER 30.00 3.38), Fairchild Semiconductor (FCS 27.80 +1.94), Apple Computer (AAPL 22.85 -1.35) and a number of other tech companies whetted investors' appetite for tech shares despite concerns over high valuation within the sector. The Philadelphia Semiconductor Index (SOXX 550.65 +8.73) climbed 1.61%. Advancers led decliners 2.6:1; advancers rose 2.9% and decliners eased 1.0%. The Briefing.com Tech Index (BTI) rose 0.4%. Advancers marginally outnumbered decliners 1.0:1; advancers rose 3.0% and decliners slipped 2.1%. The general strength in tech did not extend to the Nasdaq Composite (IXIC 2109.08 -2.05), which eased 0.10% despite Thursday's favorable economic data.
After the close Juniper Networks (22.69 -0.32), Rambus (RMBS 33.50 -0.68) and Sun Microsystems (SUNW 5.36 -0.10) reported results ahead of Reuters Research consensus estimates. JNPR guided for Q1 non-GAAP EPS of $0.08 on revenue of $210-215MM vs. Reuters Research consensus at $0.05 on $186.72MM.
That AAPL, INTC, Yahoo! (YHOO 48.09 -0.30) and the broader market traded lower despite solid results and favorable economic data underscore investors' cautious sentiment towards equities. While we continue to stress the need for selectivity because of the high valuations accorded tech companies, we remain moderately bullish on tech shares over the long-term as we think tech sector fundamentals offer some of the best opportunities for revenue growth and margins expansion. We think tech shares will exhibit above average volatility near-term given high valuations and would take advantage of the volatility to buy into quality, attractively priced names / sell richly priced shares into strength as part of a rebalancing of the tech portion of the portfolio to a neutral market weight. One company we would focus on is Intel, a member of the Active Portfolio. We think Intel will outperform the market's expectations on growth and margins, and that patient investors will be rewarded. We would accumulate at current level and add on pull-backs.
Please visit the Story Stocks and Daily Sector Wrap pages for the latest thinking on investment opportunities across market sectors, and the Page One, Looking Ahead and Economic Briefing pages for broad market perspective and outlook. For active investors and traders, visit the In Play, Swing Trader, and The Technical Take pages for actionable ideas.--Ping Yu, Briefing.com
6:32PM Thursday After Hours prices levels vs. 4 pm ET: After today's lackluster trade that was rooted in some disappointment over Intel's (INTC) earnings report last night, the after hours trade has resumed a more positive stance. Presently, the S&P futures, at 1133, are 2 points above fair value, and the Nasdaq 100 futures, at 1540, are 6 points above fair value. Tonight's earnings reports have been predominated by tech names, and just about every one of them has checked in above consensus expectations.
The below table shows tonight's headliners, and the reasons behind the stock's resulting move:
After Hours Mover % Change Move Reason for Move
Cree (CREE) +6% Small-cap semiconductor company surpasses the revised Reuters Research consensus Q2 (Dec) estimates after guiding higher on December 9; Cree also put Q3 (Mar) EPS and revenues above the Street's forecast; Competitors of CREE include the likes of AXTI and IFX
Juniper Networks (00C0) +14% Communications equipment company easily tops Street estimates in Q4 (Dec) report; Briefing.com called for upside in our Earnings Preview on In-Play; Juniper also guided higher for Q1 (Mar) on its conference call - sees EPS at $0.08 and sales at $210-215 mln; Direct rival CSCO is 3% higher tonight
ILEX Oncology (ILXO) -2% Biotech company that specializes in oncology announces that it has discontinued trials of its investigational agent eflornithine; Agent did not prevent the recurrence of bladder cancer more so than the placebo
Molex (MOLX) +4% Electronic instruments and electronic controls company tops Q2 (Dec) consensus earnings and sales estimates; Molex adds that it expects Q3 (Mar) EPS and revenues to be $0.21-0.23 and $550-560 mln, respectively - both above Street projections; Second consecutive quarter company has had above consensus outlooks
Sun Microsystems (SUNW) +1% Computer hardware company loses $0.03 per share during Q2 (Dec) - better than Reuters calling for ($0.05) - on relatively flat revenues; Sun also says it is laying off 300 manufacturing workers as part of its ongoing cost-cutting efforts
Texas Instruments (TXN) unch Semiconductor giant announces that CEO Tom Engibous will transition out of the roles of president and CEO over the next four months; Current COO Rich Templeton has been chosen by the Board of Directors to become the next CEO, effective May 1
Tomorrow, the pace of earnings slows down, although this is not to say that the market will be lacking in earnings news. Blue chip names Abbott Labs (ABT) and General Electric (GE) are both scheduled to release their December quarter numbers before the open. Economic reports will also be well-represented, with Business Inventories, Industrial Production, Capacity Utilization, and University of Michigan Consumer Sentiment (preliminary reading) on tap.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
3:10PM Intel (INTC) $33.10 -0.29: After the close Wednesday, Intel published Q4 EPS of $0.27 on revenue of $8.7416B (+22.1% Y/Y) vs. Reuters Research prints consensus at $0.25 on $8.647B. Guided for Q1 EPS of $7.9-8.5B and gross margin of 60% +/- a few points; C04 gross margin of 62% +/- a few points, R&D spending of $4.8B, capital spending of $3.6-4.0B. Reuters Research prints Q1 consensus EPS at $0.28 on $8.233B. Performance Gross margin improved 1200 bps Y/Y to 63.6%, boosted by higher margin Prescott processors and transition to 300mm and 90nm technologies. Company is narrowing operating losses on non Intel Architecture businesses. Operating margin improved 890 bps Y/Y to 29.3% (1590 bps Y/Y to 36.3% excluding extraordinary items) on firm expense control. Marketing, general and administrative expense increased in absolute terms and declined as a percent of sales by 230 bps Y/Y to 13.1%. R&D increased by 15.2% Y/Y and declined as a percent of sales by 80 bps to 13.5%.Business Segment Result
Intel Architecture Revenue grew 29.4% Y/Y to $7.671B (88% of sales). Operating income grew 86.5% Y/Y to $3.732B. Operating margin improved 1490 bps Y/Y to 48.7%.
Microprocessor revenue grew 30.6% Y/Y to $6.488B (74% of total sales; 85% of Intel Architecture sales).
Chipset, motherboard and other revenue grew 23.2% Y/Y to $1.183B (14% of total sales; 15% of Intel Architecture sales).
Communications Revenue grew 8.8% Y/Y to $592MM (7% of sales). Operating loss improved from $168MM to $49MM. Enterprise and telecom spending picking up.
Wireless Revenue fell 29.2% Y/Y to $469MM (5% of sales). Operating loss was flat at $97MM. INTC continues to lose market share but making progress with new design wins and cost containment. Look for contribution in late 2004 / early 2005.
Other Revenue fell 65.4% Y/Y to $9MM (0.1% of sales). Operating loss increased 276.5% to $1.024B.
Geographic Market Result
Asia-Pacific Revenue increased 26.8% Y/Y to $3.475B (41% of sales).
Americas Revenue grew 9.0% Y/Y to $2.356B (28% of sales).
EMEA (Europe/Middle East/Africa) Revenue rose 20.0% Y/Y to $2.126B (25% of sales).
Japan Revenue jumped 61.3% Y/Y to $0.784B (9% of sales).
Valuation
On an inverted DCF/EVA basis, assuming firm balance sheet management and steady Y/Y improvement to:
34-36% operating margin by C06, INTC's valuation implies that the company must grow revenue by 30% each year for the eight years beginning in C06 in order for investors to justify owning shares at current valuation.
39-41% operating margin by C06, INTC's valuation implies that the company must grow revenue in the high 20% range for the eight years beginning in C06 in order for investors to justify owning shares at current valuation.
44-46% operating margin by C06, INTC's valuation implies that the company must grow revenue in the low to mid 20% range for the eight years beginning in C06 in order for investors to justify owning shares at current valuation.
Consensus Y/Y growth for C04 and C05 is 15.1% and 12.7% respectively. On a price / sales basis, Intel trades at 6.2x Reuters Research consensus C04E revenue of $34.697B (+15.1% Y/Y) and 5.5x C05E revenue of $39.099B (+12.7% Y/Y), and 26.9x C04E EPS of $1.23 and 23.3x C05E EPS of $1.42, which is consistent with market leader valuation. On a price / operating income basis, shares are attractively valued relative to the industry.
Summary
Q4 results were as expected, marked by strong demand for mobile products, improving segment fundamentals and enhanced manufacturing economics. Results support our thesis that Intel's significant investments in product development and process technologies during the downturn strongly positions the company to capture share across product and geographic markets, driven by Intel Architecture products, in particular Centrino. Intel is aggressively moving silicon outside of the computer into consumer electronics from TVs to set-top boxes to smart cameras. Products are sampling. A number of new digital consumer electronics products are slated to reach the market in 2004 and 2005 including products based on the Prescott processor and Granstdale chipset, displays based on Intel's LCOS (liquid crystal on silicon) technology, and single chip solutions for the wireless market that combine communications, applications and memory functionalities. These products will help drive sales growth as well as margins expansion. Tech sector valuations are high, clouding the picture for Intel shares. We think Intel will outperform the market's expectations on growth and margins given the revenue (product and geographic) growth and margin expansion opportunities that management has developed over the past three to five years. Patient investors will be rewarded. We would accumulate at current level and add on pull-backs. Intel is part of the Active Portfolio.--Ping Yu, Briefing.com
4:35PM Nanometrics and Ebara forge supplier agreement (NANO) 20.70 -0.90: Co and Ebara Corp., headquartered in Japan, have recently concluded a purchase agreement whereby Nanometrics will supply Ebara with integrated metrology units for integration into Ebara's CMP products. Ebara will integrate the Nanometrics IM products into their CMP products as one of the standard options on the CMP systems.
4:23PM Cree beats, guides higher (CREE) 21.12 +0.54: Reports Q2 (Dec) earnings of $0.17 per share, $0.02 better than the Reuters Research consensus of $0.15; revenues rose 28.2% year/year to $72.68 mln vs the $72.47 mln consensus. Company sees Q3 EPS of $0.17-0.19 vs consensus of $0.15 on revenues of $75-76 mln, consensus $70.9 mln.
4:10PM Transmeta reports in line, ex items, guides Q104 in line (TMTA) 4.22 +0.35: Reports Q4 (Dec) non-GAAP loss of $0.13 per share, excluding net effects of non-cash charges and credits of $3.2 mln, in line with the Reuters Research consensus of ($0.13); revenues fell 41% year/year to $3.6 mln vs the $3.5 mln consensus. Co also guides Q104, sees non-GAAP loss of $0.11-0.12 (ex items), vs the R.R. consensus of ($0.11), and revenues of $5.0-6.0 mln, vs an estimate of $5.9 mln.
4:09PM Rambus beats by $0.03, sets date for stockholders' meeting (RMBS) 33.50 -0.68: Reports Q4 (Dec) earnings of $0.08 per share, $0.03 better than the Reuters Research consensus of $0.05; revenues rose 13.3% year/year to $32.4 mln vs the $29.8 mln consensus. The Board of Directors has set May 4, 2004 as the date of the Company's 2004 annual stockholders' meeting.
4:07PM TMTA prelim $0.13, in line; revs $3.6 mln vs $3.5 mln consensus :
4:06PM Molex beats by 2 cents, guides Q3 above consensus (MOLX) 34.11 +0.58: Reports Q2 (Dec) earnings of $0.21 per share (which included numerous items), $0.02 better than the Reuters Research consensus of $0.19; revenues rose 20.7% year/year to $548.9 mln vs the $504.5 mln consensus. Co expects Q3 EPS of $0.21-$0.23 on sales of $550-$560 mln, vs consensus of $0.19 and $507.5 mln.
4:05PM Digi Intl beats by $0.03, updates guidance (DGII) 10.20 +0.15: Reports Q1 (Dec) earnings of $0.08 per share, $0.03 better than Reuters consensus of $0.05; revenues rose 3.1% year/year to $26.31 mln vs the consensus of $26.0 mln. Co raises Y04 (Sep) EPS to $0.30-0.34 (previously $0.26-0.32), still below Reuters consensus of $0.35. Co sees Q2 (Mar) EPS of $0.06-0.08, consensus is $0.07 and anticipates revenues to be in the range of $25.5-26.5 mln, Reuters consensus is $26.7 mln.
4:05PM Digi Intl prelim beats by $0.03 10.20 +0.15:
3:21PM Transmeta Earnings Preview (TMTA) 4.37 +0.56: Transmeta reports its Q4 after the close today with Reuters Research consensus earnings of ($0.13) per share and revs of $3.5 mln. Soundview made comments this morning going into earnings suggesting Intel's two quarter pushout of Centrino 90nm (Dothan) could be a very big event for Transmeta. The firm believes Intel has basically missed a major portion of the notebook sweet spot for 2004 called the "Spring refresh". Soundview is comfortable with its Q4 estimates of $3.35 million in revenues and a loss of $0.13 per share. However, Pacific Growth Equities lowered its FY:04 forecast earlier this week given the firm's belief early design wins for the co's Efficeon processor have been relatively slow to materialize. In 2H:04, the firm anticipates license revenues from LongRun 2 to positively impact revenues and gross margins and maintained its equal weight rating.
3:17PM Cree beats by $0.02, guides higher (CREE) 21.12 +0.54: Reports Q2 (Dec) earnings of $0.17 per share, $0.02 better than the Reuters Research consensus of $0.15; revenues rose 28.2% year/year to $72.7 mln vs the $72.5 mln consensus. Company sees Q3 EPS of $0.17-0.19 vs consensus of $0.15 on revenues of $75-76 mln, consensus $70.9 mln
3:09PM Sun Microsystems loses $0.03, ex items (SUNW) 5.37 -0.09: Reports Q2 (Dec) loss of $0.03 per share, ex items, $0.02 better than the Reuters Research consensus of ($0.05); revenues fell 0.9% year/year to $2.89 bln vs the $2.75 bln consensus.
3:04PM Juniper Networks Earnings Preview (JNPR) 23.10 +0.41: Juniper is scheduled to report Q4 results tonight (Reuters consensus $0.05, revs $182.71 mln). Stock up 25% over the past 10 days going into the report. In preview, Legg Mason says expects results to beat consensus by a healthy margin (possibly as much as 2-3 cents on bottom-line and up to $10 mln upside on revs). Given recent move and with stock trading at 90x 2004 EPS, firm believes 2-3 cent upside on EPS and several million upside in revs is priced in, and that co will need to provide guidance that confirms strong outlook beyond just Q1 of 2004 to appease investors... C.E. Unterberg believes that investor expectations may have gotten out of hand, and that revenue whisper number of $190 mln (+10.5% sequential) is unlikely considering that prior qtr's sequential growth was only 4.3%. With respect to guidance, firm looks for JNPR to guide revs for 2-5% sequential growth.
2:55PM Sun Microsystems Earnings Preview (SUNW) 5.38 -0.08: Sun Microsystems (SUNW) is scheduled to report Q2 results after the close today, with consensus standing at ($0.05) in EPS and $2.75 bln in sales. JP Morgan expects the co to report ($0.05) and $2.7 bln in sales, and do not expect the co to provide guidance; although there are signs that IT spending is stabilizing, firm believes that SUNW's overexposure to UNIX will prevent it from exhibiting major financial improvements until further cost reductions are taken. On the other hand, Merrill Lynch expects the co to report ($0.03) on $2.85 bln in sales, as their checks suggest the co experienced a strong close for the qtr; firm says gross margin could rise to 42.3% from last qtr's disappointing 40.1%, and a richer mix may ease recent pricing pressures; also, firm says hardware was strong (with the contribution from high-end servers rising), services may come in a touch better than their original expectations, and they believe the co's software efforts are still struggling and immaterial to the qtr.
1:56PM FCS upped to Strong Buy from Outperform at Raymond James; tgt $33 27.30 +1.44: Raymond James upgrades Fairchild Semi to Strong Buy on view that a number of positive business trends will drive revenue and earnings growth into 2004. Further, firm believes shares of Fairchild remain among the least expensive among its comparables. FY04 est goes to $0.88 from $0.78. Price tgt raised to $33 from $28.
1:08PM EXTR target raised to $11 at CE Unterberg 9.29 +0.34: CE Unterberg reiterates their Long-Term Buy rating on Extreme Networks following the co's in-line Q2 results, and raises their target to $11 from $10; firm believes the overall infrastructure spending environment is improving and EXTR is well-positioned to benefit from the positive shift due to its attractive new product line and broad partnership with Avaya.
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