From Briefing.com: Tech shares swam against the tide that dragged stocks lower for most of the session to close the day modestly higher. The Briefing.com Tech Index (BTI) gained 0.3% despite decliners outnumbering advancers 1.3:1. Decliners lost 2.2% but advancers gained 3.7%.
The major indices traded under water through the early afternoon before buyers stepped in around 1:00pm ET. The S&P (SPX 1151.03 +1.93) closed up 0.17% and the Dow (DJI 10593.11 +1.63) finished almost flat at +0.02%. The Nasdaq Composite (IXIC 2033.36 -6.29) recovered only half of the day's losses and closed down 0.31%.
Large cap semiconductor shares also did not fully recover from the early selling pressure. The Philadelphia Semiconductor Index (SOXX 500.55 -9.69) dropped 1.90%. Decliners outnumbered advancers 17:1.
Among today's movers:
Interlink (LINK 10.55 +2.05) rose 24.1% after posting a profit in Q4.
Mama.com (MAMA 12.70 +2.60) gained another 25.7% after soaring 149.4% Tuesday upon posting a profit in Q4.
RF Industries (RFIL 8.11 +2.86) jumped 54.5% after posting a 73% increase in net income for Q1.
Top Image Systems (TISA 4.44 +1.97) soared 79.8% after posting a 41% increase in revenue and a profit for Q4.
SCO Group (SCOX 11.59 -1.83) fell 13.6% after posting a wider loss and announcing it is expanding litigation against companies using unauthorized versions of its Unix software.
SeaChange (SEAC 15.62 -4.31) dropped 21.6% after guiding below expectations.
Z-Tel Communications (ZTEL 2.99 -0.49) lost 14.1% following a D.C. Circuit Court of Appeals ruling that reversed and vacated several of the unbundling rules adopted by last year's Federal Communications Commission Triennial Review Order. The rules require phone companies to lease capacity to competitors.
Over 30 companies posted gains in excess of 10% for the day, most are micro to small caps moving on no news. This number has been steadily increasing over the past week, suggesting there is increasing momentum activity in the market. Don't get caught on the wrong side.
After the close, ManTech (MANT 22.36 +0.23) and Stratos Int'l (STLW 6.64 +0.18) posted results ahead of Reuters Research consensus. MANT guided below consensus.
Looking ahead to Thursday, Take-Two Interactive (TTWO 33.82 +0.72) reports before the open and Intel (INTC 29.04 -0.56) provides a mid-quarter update after the close.--Ping Yu, Briefing.com
6:08PM Wednesday After Hours prices levels vs. 4 pm ET: The extended session possesses a negative tone as buyers continue to lack strong conviction. The past four weeks have been lacked by indecision, and today's regular session was certainly no different. Valuation concerns, and fears that the market may have topped off, remain impediments to buying.
Tonight has been dominated by February same store sales results from specialty retailers. The below table lists most of them, along with other news items affecting the after hours trade. Presently, the S&P futures, at 1150, are 1 point below fair value, and the Nasdaq 100 futures, at 1464, are 3 points below fair value.
After Hours Mover % Change Move Reason for Move
Aeropostale (ARO) +3% Teen retailer reports Feb comps of +26.4%, well above the Briefing.com consensus of 10.6%; Cites an increase in the number of transactions and an enthusiastic response to spring merchandise; Stock is up 25% for the year and has just set a new 52-week high with tonight's move
American Eagle (AEOS) +2% Specialty retailer delivers record Feb sales which include a same store sale increase of 15.2% (Briefing.com consensus of +14.2%); Briefing.com has been positive on AEOS as a contrarian play since Nov 4, and the shares have appreciated 55% since then; AEOS is a member of our Active Investor Portfolio
Hot Topic (00C0) -3% Retailer of music-inspired clothing tops the Q4 (Jan) Reuters Research consensus EPS estimate on revenues that rose 31% to $194.1 mln; Also reports Feb comparable store sales of +7.6% versus a Briefing.com consensus of 6.0%; News doesn't do much for the stock, though, which has been relatively flat over the past 3 months after doubling in the past year
Mantech Intl (MANT) -9% Deliverer of IT solutions to clients of the US government shows upside in its Q4 (Dec) report, but issues mixed guidance for Q1 (Mar) and FY04 - Q1 sales falls short of the consensus as does FY04 EPS; Company was recently awarded a $29 mln Dept of Homeland Security contract and got a 7% stock pop out of it
PeopleSoft (PSFT) unch CBS Marketwatch reports that the software company's general manager of customer relationship management products, Joe Davis, is resigning to become chief executive of another company
Tomorrow, the market will have its hands full with a number of events. The European Central Bank and Bank of England will be meeting, and more February Same Store Sales will be coming out before the open. Jobless claims for the week of February 28 and the revision to Q4 productivity will also be due out at 8:30 ET. After the close, Intel (INTC) will be giving its Q1 (Mar) mid-quarter update.
For more detail on these, and other developments, be sure to visit our Stock Market Update and Daily Sector Wrap. -- Heather Smith, Briefing.com
11:37AM INTC: Wedbush previews Mid-Qtr Update 28.94 -0.66: Wedbush Morgan believes that Intel will not change its guidance on mid quarter update tomorrow, merely narrowing the rev. range from the current $7.9-$8.5 bln. Analyst checks with a number of IC suppliers to notebook manufacturers suggest that the inventory correction during Jan04 is largely over. According to the firm, the "low ball" estimates of $8.09 billion in sales and $0.26 in EPS have already been discounted. This is a rare case when merely guiding to consensus estimate of $8.3 billion in sales and $0.28 in EPS will rally the stock. Based on firms checks at the Spring IDF and with channel partners and the Intel technology and manufacturing briefing (2/26), the firm is quite confident about the prospects for the co at least holding share in its x86 core business, and gaining share in its communications business in 2004/2005, as well as enjoying higher gross margin in 2005 than 2000.
10:40AM CCMP: Weakness attributed to concerns about Intel relationship 44.54 -1.36:
9:31AM JP Morgan reits bullish stance on Semi Equips : JP Morgan retierates their bullish stance on Semiconductor Equipment industry fundamentals and equipment stocks as they believe historically low capital spending ratios over the past few years suggest under-spending, thus implying tight utilization rates well into 2005. According to the firm, capital spending should exceed chip industry revenue growth in 2004 and 2005 which makes equipment stocks look more attractive than semi's. Equipment stocks are trading at a large discount to chip stocks on 2005 EPS estimates and the firm expects consensus to continue to move up causing equipment stocks to offer more upside percentage gain potential as chip and equipment stocks rise throughout the year. They are reiterating Overweight rating on Top Picks ASML (+0.04) and Cymer (-0.15).
9:18AM Bear Stearns comments FLEX's upcoming mid-qtr update 18.40: Flextronics (FLEX) will host its regularly scheduled mid-quarter review on Thursday. According to the Bear Stearns, the quarter may be tracking slightly better-than- expected, but historically mgmt has not changed guidance on mid-quarter. Analyst believes that the MarQ is tracking well, citing: 1) Firm's top-ten customer analysis shows a 14% weighted avg decline for co vs a 16 % decline in firm's model; 2) Customer inventory remains lean with inventory/sales ending the DecQ at 8.3% vs 9.1% a yr ago and 9.5% last qtr; 3) Revenue for telecom and networking customers (14% of sales) has been revised upward (echoed by SLR and SANM). The firms rev and EPS estimates are $3.5B and $0.10.
3:39PM Seagate Technology (STX) 16.73 +0.00: Seagate Technology confirmed Q3 guidance to the low end of expectations. The world's leading designer and manufacturer of hard disc drives said EPS is expected to come in at the low end of guidance of $0.20-0.30 due to lower than expected shipment of hard drives into the enterprise and mobile markets.
The following table shows Q2 industry shipments in millions of units, and management's prior and current expectations for the total available market by segment for Q3.
Segment Q2 Shipments Prior Guidance New Guidance Mkt Share
Personal Storage 53.0 47-48 47-48 32-34%
Mobile Storage 16.3 16-17 14-15 10%
Enterprise Storage 5.8 5.5 5.0 46-47%
Management expects the desktop segment will continue to grow 10-12% Y/Y and the notebook segment to grow 30-40% Y/Y. Pricing pressure has moderated from Q2.
Shares are, based on our inverted EVA / DCF model, priced for sustained low teens revenue growth assuming steady Y/Y improvement to 19-20% operating margin.
STX shares have pulled back over 20% since the Q2 preview (Story Stocks, January 20, 2004) when we wrote then that we would hold off buying STX shares until a 10-15% pull-back. We cited concerns over competition and valuation.
We noted then that emerging storage technologies including SATA (Serial Advanced Technology Attachment) pose a threat to STX's competitive position, particularly within the enterprise segment where STX's products are centered around PATA (Parallel Advanced Technology Attachment) technology.
We also noted that Seagate is emerging from a challenging period where it lost sight of technology trends and ceded share to competitors. The company is entering a new product cycle, with products expected to ship mid-year. STX has the opportunity to grow unit volume in the mid teens to low 20% range, in-line with industry fundamentals, supported by continuing strength in the consumer segment, the long-awaited corporate PC upgrade cycle (company has an approximate 50% unit market share within the enterprise segment) and recent design wins in the notebook segment. Unit volume growth will be partially offset by the adverse pricing environment characteristic of the disk drive industry, resulting in high single digit to low-teens revenue growth.
In terms of operating performance, we think STX can readily achieve low to mid teens operating margin given the company's flexible manufacturing model and tight cost control.
The pull-back reduces the investment risk for STX but we would wait for another 10-15% decline before buying STX shares. Instead, we would swap into Komag (KOMG 22.59 +0.23).
STX trades at 1.1x F04 revenue of $6.655B (+2.6% Y/Y) and 1.1x F05 of $6.967B (+4.7% Y/Y); 12.5x C04 EPS of $1.34 and 11.2x C05 of $1.50
KOMG trades at 1.1x F04 revenue of $481.14MM (+9.8% Y/Y) and 1.1x F05 of $508.57MM (+5.7% Y/Y); 13.0x C04 EPS of $1.74 and 11.7x C05 of $1.93. KOMG is highlighted in the Relative Value Ideas Focus List (Story Stocks, March 1, 2004).--Ping Yu, Briefing.com
11:47AM Xilinx (XLNX) 41.30 -1.28: Xilinx narrowed Q4 revenue guidance after the close Tuesday. The designer of PLDs (programmable logic devices) said revenue is expected to increase 9-10% Q/Q, up from prior guidance of 7-10%.
Sales increased 29.3% Y/Y in Q3 on a 14 week quarter, driven by strong demand from the communications market. Turns business accounted for 64% of revenue but is expected to drop below 60% in Q4.
Asia-Pacific was the strongest contributor, fueled by strong demand for consumer electronic products. Asia-Pacific contributes almost as much in revenue as Japan and Europe combined, and remains the fastest growing segment.
North America sales increased 21% Q/Q, excluding impact of manufacturing transfer business, as communications customers resumed strong ordering patterns.
Gross margin increased 323 bps Y/Y to 61.8% due to manufacturing efficiencies and product mix.
Operating margin increased 492 bps Y/Y to 24.8% on firm expense control.
Management believes inventory levels are at unsustainable low levels and expects inventory replenishment in the March and more likely June quarter.
Shares are, based on our inverted EVA / DCF model, priced for sustained low 30% revenue growth assuming steady Y/Y improvement to 34-35% operating margin. Trades at 10.2x F04 revenue of $1.393B (+20.5% Y/Y) and 8.0x F05 of $1.772B (+27.2% Y/Y); 55.1x C04 EPS of $0.75 and 37.2x C05 of $1.11.
XLNX's chips are deployed in a large number of products across multiple industries. The company is benefiting from a broad industry recovery that is projected to last several years but growth expectations exceed what industry fundamentals and competitive dynamics can support over the long-term given current market forecasts. XLNX already has a dominant 50% share of the PLD market and a 60% share of the FPGA market, suggesting market share gains may be difficult to come by going forward.
The 34-35% operating margin reflected in our model reflects expected improvements in manufacturing yields, particularly 300mm where wastage is currently running at 40-50%, and continued tight operating cost control.
We would swap into competitor Altera (ALTR 22.65 -0.33) for investors seeking a PLD play. ALTR is the less expensive on a relative value basis. ALTR trades at 8.6x C04 revenue of $1.001B (+21.1% Y/Y) and 7.1x C05 of $1.216B (+21.5% Y/Y); 40.0x C04 EPS of $0.57 and 31.6x C05 of $0.72. Shares are, based on our inverted EVA / DCF model, priced for sustained 25% revenue growth assuming steady Y/Y improvement to 40% operating margin.--Ping Yu, Briefing.com
Integrated Device (IDTI) 16.51 -0.79 : Company reaffirmed Q4 revenues of approx $90.6-94.9 mln (based on 4-9% sequential growth), vs the Reuters Research consensus of $93.6 mln.
Xilinx (XLNX) 40.88 -1.70 : Analysts generally neutral to positive after the co last night tightened revenue guidance to the high end of the range. First Albany believes the shares will be weak at the open, and they would accumulate shares on any weakness as they think the less-than-expected increase is a supply issue, not a demand issue. The firm also notes that they think the company left itself some room to exceed expectations when it reports its results in April. Also, BofA upgrading XLNX's closest competitor ALTR this morning to Neutral from Sell but noting they still prefer XLNX over ALTR.
Stratos Intl (STLW) 6.64 +0.18 : After the close, reported Q3 (Jan) loss of $(0.23) per share, ex-items, $0.11 better than the one analyst's estimate of $(0.34); revenues rose 44% year/year to $16.4 mln vs the $15.0 mln estimate of the analyst. Sales revenues were at the high end of the range provided by management on the co's Q2 conf call held Dec 3.
KLA-Tencor (KLAC) 52.10 -1.40 : Moors & Cabot upgraded KLA-Tencor to Buy from Hold and raised their target to $69 from $55 based on their belief that orders are tracking ahead of plan, booking trends will continue to be strong for most of the year, margins are improving, and the recent decline in the stock has created an attractive entry point.
ASM Lithography (ASML) 18.72 +0.11 : ASM Lithography (ASML 18.72 +0.11): JP Morgan retierated their bullish stance on Semiconductor Equipment industry fundamentals and equipment stocks as they believe historically low capital spending ratios over the past few years suggest under-spending, thus implying tight utilization rates well into 2005. According to the firm, capital spending should exceed chip industry revenue growth in 2004 and 2005 which makes equipment stocks look more attractive than semi's. Equipment stocks are trading at a large discount to chip stocks on 2005 EPS estimates and the firm expects consensus to continue to move up causing equipment stocks to offer more upside percentage gain potential as chip and equipment stocks rise throughout the year. They are reiterating Overweight rating on Top Picks ASML and Cymer (CYMI 39.24 -1.27).
Taiwan Semiconductor Mfrg (TSM 11.00 -0.20): Digitimes reported TSM wafer shipment for the first quarter may grow 8-9% sequentially, which is higher than the 5% market estimate driven by strong orders from communications sector, according to Commercial Times report. Demand from major handset solution vendors like Motorola, Silicon Lab, Qualcomm and Philips has increased. With the robust demand, TSMC's second quarter revenues are believed to grow 15% from the first quarter, the report further indicated.
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