From Briefing.com: Investors focused on earnings Thursday and once again were generally pleased but not impressed with individual company progress. The result, stocks traded higher at the opening bell but quickly reversed course as investors continued taking profit in tech while trading industrials and the broad market around the flatline.
The Briefing.com Tech Index (BTI) slipped 1.1% while the Philadelphia Semiconductor Index (SOXX 532.85 -7.86) fell 1.5%. Among BTI companies, decliners outnumbered advancers 2.2:1, with decliners dropping 3.2% and advancers rising 3.3%. This compares against SOXX companies where decliners outnumbered advancers 8.0:1. Tech shares weighed down the Nasdaq Composite (IXIC 2119.01 -23.44), which fell 1.1%. The Dow (DJI 10623.18 -0.44) and S&P 500 (SPX 1143.94 -3.68) fared better, easing 0.004% and 0.3% respectively.
Looking ahead to Friday, there are no tech earnings report or economic data release of note but investors will be digesting reports from, among others: Integrated Device Tech (IDTI 20.75 +0.46); Microsoft (MSFT 28.01 -0.29); Powerwave Technologies (PWAV 9.37 -0.89); Storage Technology (STK 29.25 -0.14); UTStarcom (UTSI 35.93 -0.33); and Vitesse Semiconductors (VTSS 7.82 -0.34). Please see Industry Briefs below for details.
Based on after hours trading in these names, it looks like investors continue to be generally unimpressed with earnings. As a result, we see tech shares continuing to be highly volatile near-term. Encouraging is the fact that the magnitude of the sell off for companies that diappoint on earnings or guidance are generally limited, suggesting continued investor interest in equities and the underlying companies. We would take advantage of the volatility to swap into attractively priced companies with strong market positions. The decline in SanDisk (SNDK 59.75 -9.84) shares is a good example and provides an opportunity to buy into a quality name. Please visit the Story Stocks page for our review of select earnings reports from Thursday evening and additional investment ideas.--Ping Yu, Briefing.com
6:35PM Thursday After Hours prices levels vs. 4 pm ET: Like several of this week's extended sessions, better than expected earnings reports have been met with selling activity. Institutions appear to be waiting for the company's release to take profits from the stock's run, regardless of the actual numbers. Presently, the S&P futures, at 1141, are 2 points below fair value, and the Nasdaq 100 futures, at 1526, are 7 points below fair value. Tonight's action has been dominated primarily by technology names.
The below table highlights some of the most notable reporters, and the reasons behind the stock's move:
After Hours Mover % Change Move Reason for Move
KLA-Tencor (KLAC) -1% After warning for Q2 (Dec) in Oct, chip equipment company beats the revised Reuters Research consensus EPS estimate by $0.03; Guides above the Street's expectation for Q3 (Mar) EPS and revenues on call and says orders should grow 15% or more; Traders use the news as an excuse to book profits (KLAC trades at 62x estimated FY04 earnings)
Microchip (00C0) -3% Mid-cap semi name matches Q3 (Dec) consensus forecast of $0.19 on revenues that rose 6% to $178 mln; Puts Q4 (Mar) sales in line with the consensus estimate; Selling is in synch with its choppy action over the past two weeks
Microsoft (MSFT) -1% Software maker exceeds market's top and bottom-line expectations in Q2 (Dec) report; Issues Q3 (Mar) and FY04 (June) EPS and revenue targets that are also ahead of consensus estimates; Tonight's weakness looks to be representative of this reporting period's 'sell the news' response to otherwise good earnings
Storage Tech (STK) unch Computer storage maker blows past Reuters Research EPS estimate by $0.06 in Q4 (Dec) report and increases its FY04 net income and revenue outlook; Competitors of STK include the likes of EMC, HIT, and HPQ
UTStarcom (UTSI) +4% Communication services provider tops the Street's EPS projection by a penny, but comes in a bit light on sales in Q4 (Dec) report; UTSI does, however, guide FY04 EPS above the consensus estimate; Briefing.com noted on our Earnings Preview on In-Play that a 'few cents upside with strong EPS guidance' could be enough to push UTSI higher
Tomorrow, the earnings outpouring slows to a trickle as investors get ready for the weekend. Oil service and equipment company Schlumberger (SLB) and major carrier Northwest (NWAC) are some of the largest names releasing earnings. There are no economic reports on the calendar.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
5:22PM Storage Tech raises FY04 guidance (STK) 29.25 -0.14: -- Update -- On call, management said it targeted FY04 revenues at $2.23-2.3 bln and net income of $160-170 mln in November... Now it is more confident in its outlook, and is raising its FY04 expectation to revenue growth in the mid single digits and net income of $165-170 mln.
5:21PM KLA-Tencor guides higher for Q3 (KLAC) 59.60 -1.21: -- Update -- On call, management says Q3 (Mar) revenues are forecasted to be in the range of $370-380 mln, while EPS is expected to be in the range of $0.27-0.29. The current consensus calls for EPS of $0.25 on revenues of $353 mln. Orders in Q3 are expected to be up 15% or greater. Commenting on the outlook for the industry, management says projeced growth for the semi-cap equipment industry is expected to be at least 35% year/year in the U.S.
4:45PM Powerwave beats by a penny (PWAV) 9.37 -0.89: Reports Q4 (Dec) loss of $0.02 per share, $0.01 better than the Reuters Research consensus of ($0.03); revenues fell 5.1% year/year to $72.2 mln vs the $72.5 mln consensus.
4:37PM Skyworks beats by 3 cents, issues guidance (SWKS) 10.37 +0.19: Reports Q1 (Dec) earnings of $0.04 per share, $0.03 better than the Reuters Research consensus of $0.01; revenues rose 9.3% year/year to $175.1 mln vs the $166.2 mln consensus. Co expects Q2 revs "at last quarter's level", above consensus of $160.2 mln, "driven by new platform ramps and market share gains... we plan to again deliver gross margins of approximately 41% within our wireless business and 38% on an aggregate basis. We are forecasting operating expenses to remain flat sequentially as well. Accordingly, we expect to achieve performance on par with our seasonally strong first fiscal quarter results".
4:37PM Microchip reports in line, pro forma, guides, raises dividend rate (MCHP) 32.00 +0.19: Reports Q3 (Dec) earnings of $0.19 per share, in line with the Reuters Research consensus of $0.19; revenues rose 6.3% year/year to $178.0 mln vs the $178.2 mln consensus. Company sees Q4 revs of $180-185 mln vs the R.R. consensus of $182.8 mln. Microchip also announced today that its board of directors has declared a quarterly cash dividend on its common stock and increased the dividend rate by 16.7%.
4:36PM Integrated Device beats by $0.02, ex items (IDTI) 20.75 +0.46: Reports Q3 (Dec) non-GAAP earnings of $0.04 per share, excluding certain costs, $0.02 better than the Reuters Research consensus of $0.02; revenues rose 10.3% year/year to $87.1 mln vs the $85.0 mln consensus.
4:36PM IDTI prelim $0.04, 2 cents ahead; revs $87.1 mln vs $84.87 mln consensus :
4:30PM Actel reports in line; guides Q1 revs in line (ACTL) 27.05 +0.05: Reports Q4 (Dec) earnings of $0.11 per share, in line with the Reuters Research consensus of $0.11; revenues rose 18.9% year/year to $40.5 mln vs the $39.6 mln consensus. Co sees Q1 revenues in the range of $41.3-42.5 mln, Reuters consensus is $41.2 mln
4:29PM Power Integrations misses by $0.01, guides in line (POWI) 31.15 +0.39: Reports Q4 (Dec) earnings of $0.16 per share, $0.01 worse than the Reuters Research consensus of $0.17; revenues rose 10.6% year/year to $32.3 mln vs the $35.4 mln consensus. Company sees Q1 EPS $0.13-0.16 vs consensus of $0.16; for Y04 sees $0.70-0.80 on revs of $150-160 mln, consensus $157 mln.
4:27PM Microsoft beats by 4 cents, guides above consensus (MSFT) 28.01 -0.29: Reports Q2 (Dec) earnings of $0.34 per share, $0.04 better than the Reuters Research consensus of $0.30; revenues rose 18.9% year/year to $10.15 bln vs the $9.74 bln consensus. Co expects Q3 EPS of $0.28-$0.29 (excludes stock-based compensation expense of $0.05) on $8.6-$8.7 bln in sales, vs consensus of $0.27 and $8.56 bln; co expects FY04 EPS of $1.17-$1.18 (excludes stock-based compensation expense of $0.35) on $35.6-$35.9 bln in sales, vs consensus of $1.14 and $35.3 bln.
4:24PM Vitesse Semi beats by a penny, ex items; guides for Q2 (VTSS) 7.82 -0.34: Reports Q1 (Dec) net of breakeven, ex items, $0.01 better than the Reuters Research consensus of ($0.01); revenues rose 40.9% year/year to $50.3 mln vs the $48.1 mln consensus. Co expetcs Q2 pro forma EPS of $0.01, Reuters consensus is breakeven.
4:23PM KLA-Tencor beats by $0.03 (KLAC) 60.81 -0.69: Reports Q2 (Dec) earnings of $0.22 per share, $0.03 better than the Reuters Research consensus of $0.19; revenues rose 1.1% year/year to $338.5 mln vs the $325.8 mln consensus.
4:22PM Storage Tech beats by $0.06, ex items; announces share repurchase program (STK) 29.25 -0.14: Reports Q4 (Dec) earnings of $0.59 per share, excluding a $0.05 tax benefit, $0.06 better than the Reuters Research consensus of $0.53; revenues rose 11.0% year/year to $655.1 mln vs the $620.7 mln consensus. In a seperate release the comapny announced a share repurchase program of up to 1 mln shares per quarter through 2005.
4:19PM Western Digital beats by $0.03 (WDC) 10.75 -0.42: Reports Q2 (Dec) earnings of $0.32 per share, $0.03 better than the Reuters Research consensus of $0.29; revenues rose 11.4% year/year to $834.8 mln vs the $792 mln consensus.
4:17PM Atmel beats by 2 cents ex-items, issues 2004 guidance (ATML) 7.16 -0.12: Reports Q4 (Dec) pro forma net of breakeven, $0.02 better than the Reuters Research consensus of ($0.02); revenues rose 24.9% year/year to $380.5 mln vs the $365.9 mln consensus. (Net income of breakeven excludes other income from a legal award and asset impairment charges.) Co expects Q1 rev to be up 1-5% sequentially (roughly $384-$400 mln, consensus $359.1 mln), and anticipates for full year 2004 being profitable on 23-30% rev growth (roughly $1.64-$1.73 bln), vs consensus of $0.01 and $1.53 bln.
4:16PM MSFT prelim $0.34, 4 cents ahead :
4:16PM Genesis Microchip beats by $0.05; guides Q4 revs in line (GNSS) 19.03 -1.37: Reports Q3 (Dec) earnings of $0.08 per share, pro forma, $0.05 better than the Reuters Research consensus of $0.03; revenues rose 9.3% year/year to $56.5 mln vs the $53.2 mln consensus. Company sees Q4 revs of $52-56 mln vs the R.R. consensus of $55.3 mln
4:16PM KLAC prelim $0.22, 3 cents ahead; revs $339 mln vs $325.81 mln consensus
4:13PM UTStarcom beats by $0.01, guides Y04 higher (UTSI) 35.93 -0.33: Reports Q4 (Dec) earnings of $0.52 per share, $0.01 better than the Reuters Research consensus of $0.51; revenues rose 113.7% year/year to $643.6 mln vs the $646.3 mln consensus. Company sees Q1 EPS of $0.38, including $0.03 in dilution from offerring, sees revs of $570-580 mln, consensus $580.77 mln, for Y04 sees EPS of $1.90-1.94 vs consensus of $1.87.
4:12PM GNSS prelim $0.08, consensus $0.03; revs $56.5 mln vs $53.2 mln consensus :
4:08PM Microsemi beats by $0.02, pro forma; guides Q2 above consensus (MSCC) 26.96 -0.72: Reports Q1 (Dec) earnings of $0.11 per share, pro forma, $0.02 better than the Reuters Research consensus of $0.09; revs rose 19.8% yr/yr to $54.94 mln vs $55.25 mln consensus. Company sees Q2 pro forma EPS of $0.12-0.14 vs the R.R. consensus of $0.10.
4:07PM Corning reports in-line, beats on revs, guides Q1 revs towards high end of consensus (GLW) 12.90 -0.49: Reports Q4 (Dec) earnings of $0.04 per share, ex-items, in line with the Reuters Research consensus of $0.04; revenues rose 11.4% year/year to $820.0 mln vs the $755.5 mln consensus. Co expects Q1 sales and non-GAAP EPS of $770-$830 mln and $0.04-$0.05 vs consensus of $775 mln and $0.04.
4:06PM ATML prelim $0.02 vs -$0.02 consensus; revs $380.5 mln vs $365.9 mln consensus :
3:26PM UTStarcom Earnings Preview (UTSI) 36.02 -0.24: UTSI is scheduled to report Q4 results tonight (Reuters Research consensus $0.51 and $646.26 mln; note that First Call rev consensus differs at $640.69 mln). Oppenheimer is expecting co to post in-line results, and believes investors will be paying close attention to Q1 guidance. For Q1, analysts are projecting EPS of $0.37 with estimates ranging from $0.35 to $0.42. After a run of major upside surprises over the past yr, co came in just a penny ahead of estimates last qtr. In reaction to this report, UTSI shares fell almost 3 pts. Briefing.com noted in our preview of last qtr's earnings report that a blowout qtr might be needed to meet investor expectations. However, seems that last qtr's modest upside has served to scale back expectations this time around. Going into this report, analysts seem to be expecting very little, so a few cents upside with strong EPS guidance could be enough to appease the appetite of momentum investors this time.
3:25PM Microsoft Earnings Preview (MSFT) 28.10 -0.20: Microsoft is scheduled to report Q2 results after the close, with consensus standing at $0.30 in EPS and $9.74 bln in sales. Lehman believes the co will report in-line results, and sees potential upside on the top line driven by strength in the server biz (22% of total rev), strength in Xbox sales, and healthy PC shipments to consumers; firm says the biggest psychological negative for the stock has been the unearned rev balance, which sequentially dropped by $768 mln last qtr, but firm believes that the decline this qtr was much smaller (likely in the $200-$300 mln range). Firm believes that MSFT could modestly raise guidance this qtr (current FY04 guidance is for $1.10-$1.12 in EPS and $34.8-$35.3 bln in total sales).
3:47PM SanDisk (SNDK) 59.76 -9.83: After the close on Wednesday, SNDK reported Q4 EPS of $0.94 on revenue of $389.295MM (+116.5% Y/Y) vs. Reuters Research consensus at $0.76 on $355.44B.
Guidance
Guided for Q1 revenue of $350-370MM (-5-10% Q/Q) and product gross margin of 33-35% (consensus EPS is at $0.55 on $337.16MM); C04 revenue of $1.5-1.7B (+8-12% Y/Y) vs. consensus at $2.62 on $1.569B. License and royalty revenue is expected to come in at $30MM per quarter with potential upside in Q1 and Q4. ASPs (average selling prices) expected to decline 40% Y/Y, in-line with 2003. Product gross margin is expected to be 32-36% in H1:04 and 28-32% in H2:04. PerformanceP&L / CF Line Result
Revenue Revenue increased 116.5% Y/Y to $389.295 on a 235% increase in megabyte shipments, driven by strong sales of CompactFlash, Cruzer Mini, miniSD, SD cards, TriFlash products and xD Picture Card products.
Product revenue increased 122.7% Y/Y to $353.403MM (91% of sales).
Licensing and royalty revenue increased 70.0% Y/Y to $35.892MM.
Gross Margin Gross profit increased 105.9% Y/Y to $164.614MM. Gross margin improved 250 bps Y/Y to 42.3%.
Product gross profit increased 118.8% Y/Y to $128.722MM. Gross margin declined 70 bps Y/Y to 36.4%.
.
Operating Margin Operating profit increased 155.3% Y/Y to $108.890MM. Operating margin improved 430 bps Y/Y to 28.0%.
Sales and marketing expense increased 80.1% Y/Y to $21.251MM and improved as a percent of sales by 110 bps Y/Y to 5.5%.
General and adminstrative expense increased 12.8% Y/Y to $9.210MM and improved as a percent of sales by 210 bps Y/Y to 2.4%.
R&D increased 45.8% Y/Y to $25.263MM and declined as a percent of sales by 310 bps Y/Y to 6.5%.
Cash Flow Operating cash flow increased 166.5% Y/Y to $109MM.
Valuation
Table I (Revenue Growth and Operating Margin Matrix) shows the revenue growth and corresponding operating margin the company must achieve each year for the eight years beginning in F06 in order for investors to justify owning shares at current valuation. Table I: Revenue Growth and Operating Margin Matrix.Revenue Growth* Operating Margin*
Low 50% 18%
Low 30% 23%
25% 28%
* Assumes firm balance sheet management and steady Y/Y improvement. On a price multiples basis, SNDK trades at 2.7x C04E revenue of $1.579B (+46.2% Y/Y) and 2.3x Reuters Research consensus C05E revenue of $1.844B (+16.8% Y/Y), and 22.8x F04E EPS of $2.62 and 21.4x F05E EPS of $2.79.
Summary
Strong performance and outlook. Shares are attractive. Based on currently targetted market opportunities for flash cards, including digital imaging, we think SNDK can sustainably grow its revenue at least in line with the market, which is projected to grow by approximately 30% per year through 2007. The company's accelerated adoption of 300mm production technologies reinforces our conviction that SNDK can maintain long-term operating margin at least in the low to mid 20% range once the new capacity is brought up to normal utilization levels, with upside possible. Today's weakness reflects market pessimism towards management's forecast of a 40% Y/Y decline in ASPs, guidance for lower product gross margins as well as the volatile nature of SNDK shares. Lower ASPs ultimately make flash based products a commercially viable alternative to other storage/memory technologies, including DRAM and harddisk media, greatly expanding the market opportunity for flash and supporting growth beyond the low 30% rate implied in our model. We would take advantage of the weakness to accumulate.--Ping Yu, Briefing.com
1:21PM QUALCOMM (QCOM) 57.52 -1.25: After the close on Wednesday, QCOM reported Q1 EPS of $0.51 (excluding QSI (QUALCOMM Strategic Initiatives)) on revenue of $1.206B (+13.0% Y/Y) vs. Reuters Research consensus at $0.48 on $1.194B.
Guidance
Expect to ship 138-147MM MSM phones in F04.
Q2 EPS is expected to come in at $0.38-0.41 on revenue of $1.049-1.134B (-6-13% Q/Q; +3-11% Y/Y), excluding QSI, vs. consensus at $0.37 on $1.047B. Including QSI, EPS of $0.34-0.37 on $1.025-1.097B (-9-15% Q/Q; +1-8% Y/Y).
F04 EPS is expected to come in at $1.56-1.61 on $4.154-4.308B (+8-12% Y/Y), excluding QSI, vs. consensus at $1.56 on $4.317B. Including QSI, EPS of $1.41-1.46 on $4.209-4.368B (+6-10% Y/Y). PerformanceP&L Line Result
Revenue Revenue, including QSI, increased 13.2% Y/Y to $1.242B, driven by strong licensing and royalty fees.
Equipment and services revenue increased 3.6% Y/Y to $888.493MM (72% of sales).
QCT (QUALCOMM CDMA Technologies) revenue increased 5.9% Y/Y to $751.818MM. Operating profit declined 9.6% Y/Y to $260.661MM.*
QWI (QUALCOMM Wireless and Internet Group) revenue increased 21.7% Y/Y to $132.611MM. Operating profit increased 98.5% Y/Y to $5.480MM.*
Licensing and royalty fees increased 47.5% Y/Y to $353.604MM (28% of sales).
QTL (QUALCOMM Technology Licensing) revenue increased 38.4% Y/Y to $353.421MM. Operating profit increased 41.5% Y/Y to $324.673MM.*
* Excludes QSI, but unadjusted for non-reportable segment revenues and intersegment eliminations of ($31.355MM).
Gross Margin Gross profit, including QSI, increased 17.5% Y/Y to $833.566MM, aided by the 47.5% jump in licensing and royalty fees. Gross margin improved 250 bps Y/Y to 67.1%.
Equipment and services gross profit inched up 2.2% Y/Y to $479.962MM. Gross margin declined 80 bps Y/Y to 54.0%.
.
Operating Margin Operating profit, including QSI, increased 14.2% Y/Y to $510.240MM. Operating margin improved 30 bps Y/Y to 41.1% on lower SG&A, offset by higher R&D.
SG&A declined 7.5% Y/Y to $136.889MM and improved as a percent of sales by 250 bps Y/Y to 11.0%.
R&D increased 33.3% Y/Y to $149.938MM and increased as a percent of sales by 180 bps Y/Y to 12.1%.
Cash Flow Operating cash flow, including QSI, increased 39.5% Y/Y to $460.878MM. The company generated free cash flow of $394.062MM.
Valuation
Table I (Revenue Growth and Operating Margin Matrix) shows the revenue growth and corresponding operating margin the company must achieve each year for the eight years beginning in F06 in order for investors to justify owning shares at current valuation. Table I: Revenue Growth and Operating Margin Matrix.Revenue Growth* Operating Margin*
Low 30% 50%
30% 55%
High 20% 60%
* Assumes firm balance sheet management and steady Y/Y improvement. On a price multiples basis, QCOM trades at 10.6x F04E revenue of $4.334B (+12.7% Y/Y) and 9.9x Reuters Research consensus F05E revenue of $4.639B (+7.0% Y/Y), and 36.9x F04E EPS of $1.56 and 33.8x F05E EPS of $1.70.
Summary
Q1 results look strong on the surface but the majority of the growth in revenue and profit is from licensing and royalty fees, reflecting QCOM's success in proliferating the company's technologies into the market place but weaker momentum within the core products and services businesses. The shift in revenue mix towards licensing and fees is positive in that the impact on margins and cash flow is significant and immediate, and product momentum is likely to build as carriers, including Verizon Communications (VZ 37.24 +0.22), roll out EV-DO (Evolution-Data Optimized) services.
QCOM owns over 1,000 issued patents and has over 1,700 patent applications pending. The company's market valuation reflect the company's dominant position within the CDMA market, the idea that CDMA may evolve into the leading technology for next generation wireless applications, a global market conservatively estimated in the tens of billions, and the attendant revenue growth and margins expansion opportunities that come with dominance of a large, emerging market. As a result, QCOM shares are likely to continue enjoying strong investor support. But investors should keep in mind that competition is rapidly heating up, particularly from Texas Instruments (TXN 31.88 -0.43) and STMicroelectronics (STM 28.91 -0.09). TXN has access to QCOM's CDMA patents under a technology cross-licensing agreement signed in December 2000. TXN partnered with STM to develop a standard cdma2000 1xEV-DV (1xEvolution for Data and Voice) solution. TXN and STM began sampling chips in December 2003, and expect products in the market by Christmas. We think QCOM is likely to be pressured on both pricing and margins. In view of the heightened competitive pressures and that the company's market valuation already prices in significantly higher revenue growth and margins, we would wait for a 20-30% pull-back and/or an acceleration in sustainable growth to the high teens level as well as progress in expanding core business margins before initiating a new position.--Ping Yu, Briefing.com
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