From Briefing.com: The news out of Japan is sounding a bit more rosy. Housing starts rose for the second consecutive month, consumers appear to finally have loosened the purse strings after several years of belt tightening and industrial production rose 3.4% in January, hitting a 37-month high.
Domestically, the economic data is also favorable. The February Chicago PMI came in at 63.6, marginally above consensus. A reading above 50 demonstrates strength. Q4 real GDP was revised to 4.1%, up from 4.0%, and February Consumer Sentiment was revised to 94.4, up from 93.1.
The momentum, particularly overseas, is positive. It points to a broadening economic recovery/expansion that is global in scope, and one that provides support for the market's revenue and earnings expectations and a firm floor for equity valuations. Tech companies are prime beneficiaries of a global recovery. We remain moderately bullish on tech over the long-term.
The favorable data helped stocks to open higher and tech shares to end the week on a positive note, but large cap semiconductor shares and the broader market could not hold onto the early gains.
The Briefing.com Tech Index (BTI) rose 0.60% while the Philadelphia Semiconductor Index (SOXX 502.26 -7.58) dropped 1.49%. Among BTI companies, advancers outnumbered decliners 1.2:1, with advancers gaining 2.7% and decliners losing 1.9%. Among the 18 companies that make up the SOXX, decliners outnumbered advancers 8:1.
The broader market finished around the flatline. The Dow (DJI 10583.92 +3.78) edged up 0.04%, the S&P (SPX 1144.94 +0.03) was essentially unchanged and the Nasdaq Composite (IXIC 2029.82 -2.75) eased 0.14%.
Among today's movers, Act Teleconferencing (ACTT 3.21) jumped 33.2%, Globecomm Systems (GCOM 6.15 +0.99) gained 19.2% and Niku (NIKU 13.17 +1.72) added 15.0% after posting Q4 results.
Looking ahead to next week: Computer Network Technology (CMNT 10.16 +0.49) reports after the close on Monday, Finisar (FNSR 2.87 -0.08) and SeaChange (SEAC ) after the close on Tuesday, Take-Two Interactive (TTWO 31.30 -0.85) and SCO Group (SCOX 12.18 +0.00) before the open on Wednesday, and ManTech Int'l (MANT 20.88 -0.48) after the close on Wednesday.
6:20PM Weekly Wrap :
The market dug a pretty big hole for itself at the start of the week, and spent the rest of the week trying to pull itself out. With the (just barely) exception of the S&P 500 and Russell 2000, the indices were unable to do so, and the Nasdaq specifically finished with its sixth week of losses.
The Composite's troubles weren't so much the fault of earnings news - pronouncements from Ingram Micro (IM), Marvell (MRVL), and Novellus (NVLS) were all encouraging - as it was the result of traders' anxieties surrounding the Nasdaq's recent deterioration. The Composite ended last week below its 50-day simple moving average, and was unable to stage a sustainable break above that level for all of this week. Traders stuck with the bearish trend at hand and sent groups like semiconductor, wireless, and software even lower. Within the software group, Oracle (ORCL) and PeopleSoft (PSFT) both fell after the Department of Justice filed a federal antitrust suit Thursday to block Oracle's hostile takeover of PeopleSoft
As for the blue chip issues, they outperformed for the sixth consecutive week as investors continued to rotate into value-oriented names. Hospital, restaurant, tobacco, food distributor, and casino all led the market in part to their defensive attributes, and found retail also accompanying their moves thanks to a number of strong earnings reports from apparel names. Recent stand-outs homebuilding and oil & gas drillers also put up big moves. The latter benefited from the spike in crude oil to a new five-week high (at $36.16/bbl) on signs that US gasoline inventories will be insufficient to meet summer demand.
Fed Chairman Greenspan had his own prognostications when he appeared in front of the House Budget Committee. Dr. Greenspan reiterated his 'growing concerns about the prospects of the federal deficit' and said that spending cuts - and not tax increases - were the best way to deal with it. The FOMC Chair ignited a political discussion by pinpointing Social Security and Medicare as the areas to rein in spending with the Baby Boom generation aging and placing 'enormous demands on our nation's resources.' Dr. Greenspan also called on Congress to impose tighter restrictions on Fannie Mae (FNM) and Freddie Mac (FRE) and their ability to issue debt.
Other economic indicators were more rosy, and spoke to the economy's strengthening under the auspices of a resilient consumer and renewed business spending. Q1 GDP was revised up to 4.1% (consensus of 3.8%), February Michigan Consumer Sentiment was revised higher to 94.4 (consensus of 94.0), and the February Chicago PMI Index came in at 63.6 (consensus of 63.5). Economic data released earlier in the week fell short of the consensus expectations, but they did not play a prominent role in determining market direction.
Looking to next week, the market will get the 'mother' of all economic reports: February employment on Friday. Other items that will help dictate the tone of trading will be Intel's (INTC) mid-quarter update after the close on Thursday, and the Bank of England/ECB's meetings before the open on Thursday. Speculation that the ECB would intervene or cut interest rates was behind the dollar's rally versus the euro this week.
Briefing.com believes the market will trade in guarded fashion up until these events as buyers remain troubled by the indices' recent performance. The market has simply lost a lot of its momentum, and we continue to advise investors to maintain good exposure to conservative stocks.
Index Started Week Ended Week Change % Change YTD
DJIA 10619.03 10583.92 -35.11 -0.3 % 1.2 %
Nasdaq 2037.93 2029.82 -8.11 -0.4 % 1.3 %
S&P 500 1144.11 1144.94 0.83 0.1 % 3.0 %
Russell 2000 579.89 585.56 5.67 1.0 % 5.1 %
2:40PM Marvell Technology (MRVL) 44.87 +1.99: Marvell Technology posted Q4 results after the close Thursday. The fabless provider of semiconductors for the broadband communications and storage markets printed EPS of $0.29 on revenue of $243.294MM (+61.3% Y/Y) vs. Reuters Research consensus at $0.28 on revenue of $240.31MM.
Storage products accounted for approximately 50% of revenue; communications accounted for the balance.
Markets remain competitive.
Gross margin declined 120 bps Y/Y to 52.2%, in-line with guidance.
Operating margin increased 439 bps Y/Y to 18.6% as management worked on containing operating expenses.
Guided for Q1 non-GAAP EPS of $0.00-0.02 (GAAP of -$0.10 to -$0.08) on revenue of $108-115MM (+4.7-11.5% Y/Y) vs. consensus at $0.29 on $249.67MM.
F05 revenue projected to come in at $1.125-1.175B (+37.2-43.3% Y/Y). Gross margin is forecast to come in at 51-52% with pro-forma operating expense at 31-33% of sales.
Shares are, based on our inverted EVA / DCF model, priced for sustained upper 20% revenue growth assuming steady Y/Y improvement to 23% operating margin.
Revenue expectations may prove to be conservative near-term. MRVL is driving adoption of WLAN (wireless-local area network) into consumer electronic devices, is strongly positioned in gigabit Ethernet, and is expanding its total addressable market by entering the rapidly growing power management market as well as a number of consumer electronics markets, suggesting potential upside to revenue expectations.
The implied operating margin is in-line with management's L-T business model, which calls for gross margin of 51-52%, operating expense of 28-30% of sales and operating margin of 21-23% within 4-6 quarters.
We would accumulate shares.--Ping Yu, Briefing.com
12:50PM McData (MCDTA) 8.10 +0.30: McData reported Q4 results after the close on Thursday. The provider of storage networking solutions published EPS of $0.03 on revenue of $114.008MM vs. Reuters Research consensus at $0.02 on $115.36MM.
Product revenue increased 18% Q/Q to $94.7MM. Software revenue increased 41% Q/Q to $14.0MM. New product cycle at channel partner International Business Machines (00C 96.94 +0.15) and strong demand for FICON-based Director product accounted for much of the quarter's strength. IBM revenue increased 62% Q/Q to 29% of sales, up from 21% in Q3. The company tripled its share in the switch market.
Gross margin came in at 57.3% vs. guidance in the mid 50%, driven by moderating price pressure, stable sales cycle, and improved channel and product mix.
Operating margin declined 900 bps Y/Y to 4.7% as operating expense outgrew sales.
Guided for Q1 non-GAAP EPS of $0.00-0.02 (GAAP of -$0.10 to -$0.08) on revenue of $108-115MM (+4.7-11.5% Y/Y) vs. consensus at $0.01 on $112.95. Gross margin is expected to be in the mid 50% range. Total operating expense is forecast to come in at $59-62MM, with SG&A expense at $31-33MM and R&D at $28-29MM.
Shares are, based on our inverted EVA / DCF model, priced for sustained upper teens revenue growth assuming steady Y/Y improvement to 15% operating margin. The implied operating margin is consistent with management's long-term operating model target.
We commented in the Q3 review (Story Stocks, December 02, 2003) that competitive pressures distort the outlook for MCDTA; that despite MCDTA's relatively high operating leverage business model, competitors are introducing very aggressively priced products, calling into question MCDTA's ability to achieve the growth and operating margin improvement implied in our model. We noted we would hold off buying in until after a 20-25% pull-back or until there are signs of stabilization of average selling prices/easing of competitive pressures.
Shares are down over 15% since the Q3 review and competitive pressures appear to be moderating, lowering the investment risk for this name. Nevertheless, we don't see the need to rush to buy shares. We would wait for an additional 8-13% pull-back.--Ping Yu, Briefing.com
1:29PM MRVL target raised to $60 at Wedbush 45.06 +2.18: Wedbush Morgan reiterates their Buy rating on Marvell Tech and raises their target to $60 from $52 following stronger than expected results; firm says the big surprise was mgmt's response to their question about the Intel relationship: it appears that Intel will be using at least the GE PHY from Marvell on the 0.13 micron process when it transitions its desktops/low end servers (and possibly notebooks) to PCI-Express, which removes the biggest cloud overhanging the stock; also, the other surprise was that mgmt raised long-term operating margin target to 21-23% from 18%.
9:16AM CNXT initiated at Pac Growth with an Over Weight rating 7.39: Pacific Growth initiates Conexant Systems (CNXT) with an Over Weight rating. Shareholders recently approved the merger of Conexant and GlobespanVirata. Merger documents indicate the deal should be immediately accretive. Although cost synergies will likely be realized first, the firm believes sales synergies will be greater over time. The co's markets have recently begun to accelerate. Taking a semiconductor average multiple on the revenues and EPS (3.4x and 30x), the firm could easily see how CNXT could generate a much higher valuation, particularly if the debt were retired. Given the strategic positioning and the strong growth forecasted in CNXT's end markets, the firm finds the current valuation overly conservative.
Cisco Systems (CSCO) 23.16 -0.19 : Reuters reported that a top executive at Cisco Systems said on Thursday its customers are more confident but still careful about their spending on technology. "While there is optimism there, you are also seeing a slow and steady progress as opposed to an immediate ramp-up to a level I think some people were expecting," CFO Dennis Powell said. "Our customers today are more optimistic than they were, say, six months ago or even a quarter ago. Having said that, as they look at what they're going to be doing on the spending side, they are going to be very disciplined about the amount of spending that they allow to occur," Powell said at the Reuters Technology, Media and Telecommunications Summit in New York.
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