From Briefing.com: Stocks struggled to stay afloat Wednesday after opening higher. Investors found little inspiration in January Housing Starts, which fell a larger than expected 7.9% to 1.903MM. The decline was due primarily to seasonal / weather-related factors.
The Dow (DJI 10671.99 -42.89) gave up 0.40% or almost half of Tuesday's gains. The S&P (SPX 1151.82 -5.17) put in a similar performance, dropping 0.45%. The Nasdaq Composite (IXIC 2076.47 -3.88) eased 0.19%.
On the surface, large cap semiconductor shares appear to have bucked the general market trend but the breadth figures speak to the lack of buying interest. The Philadelphia Semiconductor Index (SOXX 522.46 +3.48) edged up 0.7% but decliners outnumbered advancers 1.3:1 with advancers gaining 2.1% and decliners losing 0.5%. The Briefing.com Tech Index (BTI) dipped 0.5%. Decliners outnumbered advancers 1.6:1, with decliners shedding 2.5% and advancers gaining 2.6%.
The gains in the SOXX was due primarily to Broadcom (BRCM 42.46 +2.90), which rose 7.3% after announcing it would raise guidance during an investor conference call scheduled for after market hours on Wednesday. Management raised Q1 revenue growth guidance from 10% Q/Q to 16-18% Q/Q. We think these expectations are already priced into BRCM shares. We would take profits. Please visit the Story Stocks page on Thursday for our investment summary.
Today's movers: Brooktrout (BRKT 18.50 +1.74) closed higher 10.4% after trading up as much as 19% following the company's Q4 report; Inter-Tel (INTL 32.22 +3.81) rose 13.4% on strong Q4 results; Netease.com (NTES 51.46 +10.16) jumped 24.6% on strong results; Novatel Wireless (NVTL 20.60 +3.90) gained 23.4% as investors continued to respond favorably to the company's deal with Verizon (VZ 38.11 -1.09); Rambus (RMBS 34.93 +9.09) soared 35.2% after a FTC administrative law judge ruled the commission failed to prove its case against the company; Dobson Communications (DCEL 4.60 -2.65) fell 36.6% after reporting disappointing results and outlook; and Zoom (ZOOM 4.85 -0.91) dropped 15.8% after the company announced senior executives may exercise options and sell shares in the open market.
After the close, ADC Telecom (ADCT 3.39 +0.08), Applied Materials (AMAT 22.31 +0.37), Intuit (INTU 49.19 -0.04) and OmniVision Technologies (OVTI 25.63 +0.73) posted results ahead of expectations. INTU guided below consensus.
Looking ahead to Thursday: Anteon International (ANT 30.62 -0.21) and Credence Systems (CMOS 12.98 +0.27) report before the open, and BEA Systems (BEAS 12.95 -0.01) and Hewlett-Packard (HPQ 23.51 +0.12) after the close.--Ping Yu, Briefing.com
6:07PM Wednesday After Hours prices levels vs. 4 pm ET: Tonight's extended session has found buyers fighting over each other after Applied Materials (AMAT) and Broadcom's (00C0) encouraging earnings pronouncements. Both tech names have experienced better than expected order rates, which has translated into stronger revenues. The effect has sent the S&P futures to 1154 (3 points above fair value) and the Nasdaq 100 futures to 1519 (10 points above fair value).
The below table lists tonight's most notable news items, and the reason behind the stock's resulting move:
After Hours Mover % Change Move Reason for Move
ADC Telecommunications (ADCT) -11% Large-cap communications equipment name reports Q1 (Jan) breakeven on revenues that fell short of Reuters Research consensus estimates; Company goes on to issue Q2 (Apr) top and bottom-line guidance that is also short of the Street's forecasts; Traders sell into ADCT's 50% 6-month rally
Advance Auto Parts (AAP) -2% Hardline retailer shows strong upside in its Q4 (Dec) report, but warns for Q1 (Mar) and FY04; Company has experienced competition from AZO and WMT
Applied Materials (AMAT) +5% World's largest semiconductor equipment maker beats by $0.04 in Q1 (Jan) report on revenues that rose 48% to $1.56 bln; Applied Materials also says it sees Q2 (Apr) EPS of $0.17-0.19 (consensus of $0.11), revenues rising 20% sequentially to $1.87 bln (consensus of $1.48 bln), and orders increasing 30% sequentially on its conference call
Broadcom (BRCM) +3% After the semi company announced a call yesterday to discuss its 'stronger business outlook' (to which BRCM got a 7% pop), Broadcom said Q1 (Mar) revenues should rise 16-18% sequentially from +10% earlier; Puts the top-line at roughly $555.8-565.3 mln versus the Reuters Research of $524.8 mln
Intuit (INTU) -5% Maker of Turbo Tax tops the Q2 (Jan) EPS and revenue estimates, but puts Q3 (Apr) forecasts below that of the Street's projections; Intuit does guide FY04 (Oct) to $1.60-1.70 (consensus of $1.64) but this is not enough to stymie selling in light of its recent senior management changes
Tomorrow, the market will hear from retail giants Target (TGT) and Wal-Mart (WMT) as well as network solutions provider Ciena (CIEN). 3 economic reports are also on the docket: initial claims for the week of February 14, January Leading Indicators, and the February Philadelphia Fed Index.
For more details on these and other developments, be sure to visit Briefing.com's Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
6:49PM Applied Materials announces Q2 orders to increase 30% sequentially on conference call (AMAT) 22.31 +0.37: -- Update --
4:50PM BRCM Call Update : Broadcom revises Q1 guidance from 10% to 16%-18% in sequential revenue growth. Analysts speculated on average that the guidance could be as high as 15%. In terms of actual revs, a 16%-18% sequential increase would be a range of $555.8 mln to $565.3 mln.
4:11PM OmniVision beats by $0.15, beats on revs; guides up for Q4 (OVTI) 25.25 +0.35: Reports Q3 (Jan) earnings of $0.57 per share (before the effect of the Feb 15th stock split), $0.15 better than the Reuters Research consensus of $0.42; revenues rose 209.7% year/year to $94.5 mln vs the $77.0 mln consensus. Co sees Q4 (Apr) EPS of $0.30-0.31 and revenues in the range of $96-100 mln, Reuters consensus is $0.21 (split adjusted) and $77 mln, respectively.
4:10PM Applied Materials beats by $0.04, ex-items (AMAT) 22.31 +0.37: Reports Q1 (Jan) earnings of $0.12 per share, ex-items, $0.04 better than the Reuters Research consensus of $0.08; revenues rose 47.5% year/year to $1.56 bln vs the $1.32 bln consensus. New orders of $1.68 bln for Q1 increased 32% sequentially and 66% yoy. Backlog at the end of Q1 was $2.63 bln, compared to $2.50 bln at the end of Q403... CIBC had expected bookings to rise 30-35% sequentially vs guidance of 20%. Smith Barney expected order growth of 25-35%.
4:08PM ADC Telecom reports in line ex items, on light revenues (ADCT) 3.39 +0.08: Reports Q1 (Jan) earnings of $0.00, ex items, in line with the Reuters Research consensus of $0.00; revenues fell 13.4% year/year to $168.5 mln vs the $176.7 mln consensus. Co sees Q2 EPS of approx $0.00 on revs of approx $175 mln vs the R.R. consensus of $0.01 & $187.1 mln respectively.
3:01PM Broadcom Conference Call Preview (BRCM) 42.67 +3.11: -- Update -- Broadcom is holding a conference call after the close to discuss their "stronger business outlook". Given the co's previously announced strong guidance of 10% sequential rev growth, several analysts believe the new guidance number could be as high as 20%. In taking a tally of analysts, we come up with the following: Lehman thinks the co will guide to low- to mid-teens, CIBC believes the co could possibly guide to upwards of 15% sequential growth, and Morgan Stanley notes that historical results vs initial guidance suggests that Q1 could grow 15-20% sequentially. Based on BRCM's Q4 revs of $479.1 mln, 15-20% sequential growth would imply Q1 revs of $550-$573 mln.
2:58PM IBM moves to lows of day following Dow Jones report that judge rules co must make back payments in pension case (IBM) 98.39 -0.98: -- Update -- The retroactive benefits reportedly could be $6 bln.
2:46PM AMAT: Applied Materials Earnings Preview 22.23 +0.29: Applied Materials is scheduled to report Q1 results after the close, with consensus standing at $0.08 in EPS and $1.32 bln in sales (guidance is for $0.06-$0.08 in EPS and $1.28-$1.32 bln in sales). CIBC expects the co to report $0.09 on $1.35 bln in sales, and expects bookings to rise 30-35% QoQ (vs guidance of 20%) and book-to-bill to come in between 1.15:1 and 1.20:1; in addition, firm expects mgmt to re-emphasize that the co's mkt share is now accelerating into 300mm tooling at the 130/90nm nodes. Smith Barney expects the co to report an in-line qtr, and while they expect order growth of 25-35%, they say EPS upside is hampered by nagging service infrastructure issues that continue to pressure margins; firm expects the co to guide for Q2 order growth of 20-25%, ahead of peers Novellus and KLA-Tencor and just shy of Lam Research's 26% guidance, and says that their Q2 ests of $0.09 and $1.36 bln (below consensus of $0.11 and $1.48 bln) could prove to be conservative due to strong order growth in Q1.
10:47AM RMBS Color 33.00 +7.16: AmTech says that Rambus's (RMBS) victory at the Federal Trade Commission is decisive and will prove to be a resounding psychological boost for the stock; while the full FTC must ratify this decision, firm thinks the judge's outright dismissal is a very strong signal that the burden of establishing any liability was not proven, and firm further notes that the "bizarre" ruling from the European Patent Office has zero bearing on the key legal developments in the U.S. Firm would be aggressive buyers today and would be very comfortable buying the stock into the high $30s.
10:13AM TER: Order patterns suggest TER may have gained share at expense of A -4.6% and possibly CMOS +2.5% -- Amtech 26.66 +0.22:
9:36AM KOPN target increased to $10 at ThinkEquity 6.27 -0.33: ThinkEquity raises the target price on Kopin (KOPN) to $10 from $8 after reporting results last night. The co generated $6.5 mln in cash during 2003, and the firm believes it will continue to be cash flow positive for the foreseeable future. Currently, the co has approx $2.20 in cash and no debt. The firm believes that the stock will react well to the improving markets in 2004, and that it is currently undervalued given its return to cash flow profitability, and what the firm believes will be an imminent return to operating profitability.
Acacia Research (ACTG) 5.82 -0.19 : Filed a shelf with a maximum value of $50 mln.
Texas Instruments (TXN) 31.44 +0.27 : Texas Instruments (TXN 31.44 +0.27): CSFB added Texas Instruments to their Focus List, as they believe the potential upside to TXN is not yet fully appreciated by investors; firm says the combination of several unique mkt opportunities as well as further operating and manufacturing leverage should move the co to previously unattained levels of profitability. Target range is $30-$37. Morgan Stanley upgrades Semtech (SMTC) to Overweight from Equal-Weight, as they see the co gaining analog mkt share after 5 qtrs of share loss; firm notes that the stock has outperformed the S&P 500 by an avg of 20% in qtrs where it gained share over the last 5 years, and believes that the co's YoY rev growth rate should accelerate through the Oct qtr, vs an expected deceleration for the industry in the middle of the year. Target is $30.
Rambus (RMBS) 34.93 +9.09 : As reported last night, a judge has dismissed a suit brought by the FTC against Rambus. The Federal Trade Commission suit against the company has been dismissed in its entirety in a ruling issued by Judge Stephen J. McGuire, the FTC's chief administrative law judge presiding over the case. The ruling came after a three-month evidentiary hearing and is subject to potential further review by the full Commission and review by a United States Court of Appeal. "Today's ruling dismissing the FTC case is a fundamentally important step for Rambus as we seek to be fairly compensated for the use of our intellectual property... It is now time, we believe, for these issues to be set aside, and for Rambus patent claims to be resolved on their merits." For more information about the ruling and for a copy when it becomes available, see www.ftc.gov, docket # 9302.
AmTech says that Rambus's (RMBS) victory at the Federal Trade Commission is decisive and will prove to be a resounding psychological boost for the stock; while the full FTC must ratify this decision, firm thinks the judge's outright dismissal is a very strong signal that the burden of establishing any liability was not proven, and firm further notes that the "bizarre" ruling from the European Patent Office has zero bearing on the key legal developments in the U.S. Firm would be aggressive buyers today and would be very comfortable buying the stock into the high $30s.
Semtech (SMTC) 25.60 +1.52 : Morgan Stanley upgraded Equal-weight to OVERWEIGHT. Target $30. Believes co is gaining analog mkt share after 5 qtrs of share loss and that YoY rev growth rate should accelerate through Oct qtr.
Applied Materials (AMAT) 22.31 +0.37 : After the close, reported Q1 (Jan) earnings of $0.12 per share, ex-items, $0.04 better than the Reuters Research consensus of $0.08; revenues rose 47.5% year/year to $1.56 bln vs the $1.32 bln consensus. New orders of $1.68 bln for Q1 increased 32% sequentially and 66% yoy. Backlog at the end of Q1 was $2.63 bln, compared to $2.50 bln at the end of Q403. CIBC had expected bookings to rise 30-35% sequentially vs guidance of 20%. Smith Barney expected order growth of 25-35%.
Announced Q2 orders to increase 30% sequentially on conference call.
2:23PM Network Appliance (NTAP) 23.96 +1.69: Network Appliance posted Q3 results after the close Tuesday. The provider of enterprise-level storage solutions recorded EPS of $0.11 on revenue of $297.287MM (+30.1% Y/Y) vs. Reuters Research consensus at $0.10 on $290.58MM. Favorable currency contributed 5% to overall growth rate.
Product revenue increased 31.2% Y/Y to $268.955MM (91% of sales). Software accounted for approximately 31% of sales and by our estimates increased 43-45% Y/Y. Services revenue increased 21.0% Y/Y to $28.332MM (9% of sales).
Gross margin declined 12 bps Y/Y to 60.6%. Product gross margin increased 30 bps Y/Y to 65.4%. Services gross margin declined 1150 bps Y/Y to 16.3%.
Operating margin increased 563 bps Y/Y to 16.0% as management maintained firm control over operating expenses.
Guided for Q4 EPS of $0.11-0.12, excluding an expected $0.01 dilutive impact of Spinnaker Networks acquisition, on revenue of $318.92-323.75MM (+32-34% Y/Y; +7-9% Q/Q) vs. consensus at $0.11 on $304.02MM.
NTAP's Q4 results illustrate the story behind storage technology companies remains quite compelling, and the global market opportunity for storage systems may support low 30% growth. But we note that, based on our inverted EVA / DCF model, NTAP shares are priced for sustained mid to high 30% revenue growth assuming 61% gross margin and steady Y/Y improvement to 30-31% operating margin. Given that:
market expectations are significantly higher than the company's actual operating model, and management's guidance for 25% revenue growth, 57-59% gross margin and 15-17% operating margin;
NTAP shares would only be at fair value assuming the company achieves and sustains the expected operating model;
market share gains will be difficult to sustain given the competitive environment (At mid to high 30% growth, NTAP is a $16.8B annual revenue company at the end of the forecast period, implying the company will have to gain significant market share against competitors and/or the addressable market opportunity has to materially expand); and
the path to operating margin expansion is less than clear (NTAP has been successful in expanding operating margin by tight expense control and by growing software revenue, which carry higher gross margin, at a pace sufficient to maintain relatively stable blended product gross margin. But with software revenue already at 31% of sales it is less than clear how the company will continue to sustain software growth above hardware.),
we would take profits on today's strength and wait for a 35-40% pull-back or until the company demonstrates sustained mid 30% growth and operating margin in the low to mid 20% range before initiating a new position. We would swap into Overland Storage (OVRL 18.34 -0.22).--Ping Yu, Briefing.com
10:36AM Agilent Technologies (A) 36.34 -1.15: Agilent reported Q1 results after the close Tuesday. The manufacturer of test, measurement and analysis solutions and semiconductor products for the communications, life sciences and semiconductor industries published non-GAAP EPS of $0.21 on revenue of $1.643B (+16.4% Y/Y; ~13% Y/Y in constant currency) vs. Reuters Research consensus at $0.22 on $1.657B.
Management raised guidance in December. Q1 results came in at the low end of management's revised guidance as a result of the early celebration of the lunar new year in Asia which resulted in a weaker than expected January for capital goods. Management is seeing orders for capital goods strengthening in February.
Orders increased 27.5% Y/Y to $1.731B with strength across product segments and geographies, particularly in Asia where orders grew 43% Y/Y. The book-to-bill rose Y/Y from 0.96 to 1.03, driven by Test and Measurement, and Semiconductor Products. The pricing environment remains stable with no significant discounting.Product Segment Order Growth Revenue Growth Orders Revenue % of Sales Operating Margin
Test and Measurement +8.1% +1.4% $642MM $642MM 39% 0.6%
Semiconductor Products +52.8% +27.8% $582MM $469MM 29% 10.3%
Life Sciences & Chemical Analysis +14.6% +13.4% $307MM $313MM 19% 16.0%
Automated Test orders +73.9% +61.0% $200MM $219MM 13% 10.0%
Total +27.5% +16.4% $1731MM $1643MM 100% 8.3%
Gross margin increased 720 bps Y/Y to 46.0%. Operating margin improved Y/Y from a loss to 8.3%. The Q/Q increase in operating expenses was entirely due to foreign exchange.
Guided for Q2 EPS of $0.20-0.25 on revenue of $1.65-1.70B (+12.5-15.9% Y/Y) vs. consensus at $0.23 on $1.686MM. Management is comfortable with the Street's range of estimates for the full year. Consensus is at $0.98 on $6.873B.
Agilent shares have risen over 25% since the Q4 review (Story Stocks, November 18, 2003) when we commented that management is delivering on high-teens order growth, suggesting revenue growth may accelerate as prices firm, and management is making headway in reducing Agilent's cost structure towards the 15-16% operating margin implied in our model. As a result, on a multiples basis, Agilent shares should trade well in the coming weeks as earnings-momentum investors accord Agilent shares higher price multiples in anticipation of continuing growth in operating income.
Shares are now priced for sustained high 20% revenue growth assuming 20% operating margin based on our inverted EVA / DCF model. The growth expectations are now above what the company may be able to sustain on an organic basis given the revenue mix but the company may be able to achieve blended operating margin above the 20% rate implied by our model. The company is now operating at a quarterly break-even cost structure based on $1.4B in revenue, a material improvement over the operating model a year ago.
The 25% run-up materially increases near-term investment risk. We would take profits, and wait for a 15-20% pull-back or for sales growth to accelerate to the 20% range before initiating a new position.--Ping Yu, Briefing.com
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