From Briefing.com: Investors took profits at the opening bell on Friday following Thursday's 1.6% rise in tech shares, the Department of Labor's report of a weak increase in February non-farm payrolls, and Intel's (INTC 28.95 -0.70) mid-quarter update.
The major averages rebounded from the opening bell sell-off to positive territory by mid-morning to close the session around the flat-line. The S&P (SPX 1156.86 +1.99) rose 0.17%, the Dow (DJI 10595.55) edged up 0.07% and the Nasdaq Composite (IXIC 2047.63 -7.48) eased 0.36%.
Large cap semiconductor shares fell at the opening after INTC narrowed guidance to the low end of management's initial forecast. The Philadelphia Semiconductor Index (SOXX 504.25 -4.45) rebounded from the early losses but could not hold onto the gains, and closed the session down 0.87%. Decliners outnumbered advancers 3.3:1.
INTC's mid-quarter guidance is positive. Management is guiding for Y/Y revenue growth at or above 20% and gross margin approximately 800 bps above year ago levels, this in a modest enterprise spending environment and without the full benefit of efficiencies from the transition to 300mm and 90nm technologies. We think there is upside to both revenue and margins. We would continue to accumulate position over time.
Overall, tech shares edged higher. The Briefing.com Tech Index (BTI) rose 0.11% despite decliners outnumbering advancers 1.2:1 as advancers gained 2.9% while decliners lost a more modest 2.2%.
Among today's movers:
Advancers: Aware (AWRE 4.44) jumped 20.0%, Fiberstars (FBST 9.18 +0.98) 12.0%, NaviSite (NAVI 6.82 +1.67) 32.43%, Roxio (ROXI 4.47 +0.57) 14.6%, Sierra Wireless (SWIR 31.28 +3.23) 11.5%, and Smith Micro Software (SMSI 3.14 +0.47) 17.6%, all on no news.
Decliners: QAD (QADI 13.00 -2.81) dropped 17.8% after guiding F05 below expectations, and Symbol Technologies (SBL -2.49) fell 13.8% after posting lower than expected Q4 results.
After the close, General Cable (BGC 7.49 -0.02) lowered Q1 guidance citing the sudden rise in aluminum and copper prices over the past few months.
Looking ahead to next week: on Wednesday, Comtech Telecommunications (CMTL 27.82 -0.59) reports before the open, and Comverse Technology (CMVT 20.63 -0.06) and Tech Data (TECD 42.28 -0.52) after the close; on Thursday, National Semiconductor (NSM 40.87 +0.52) reports during the session and Oracle (ORCL 12.71 -0.29) after the close.
Please refer to the bottom of the Tech Stocks page for performance by sub-sector.
Have a good weekend.--Ping Yu, Briefing.com
5:56PM Weekly Wrap :
Entering the month of March, the Nasdaq had suffered a decline for six consecutive weeks. Accordingly, had you been told at the beginning of the week that Intel (INTC) would share a lukewarm mid-quarter update and that the February employment report would show a mere 21K increase in nonfarm payrolls, you probably would have expected the Nasdaq to suffer a seventh consecutive weekly loss. Well, that wasn't the case. Despite those disappointing developments, the number seven lived up to its lucky reputation as the Nasdaq managed to break its losing streak.
As it so happens, it was a winning week all around for the major indices. Although the Dow, Nasdaq, and S&P are likely to get top billing in most weekly recaps, it should be noted that the market's advance in the first week of March was spearheaded by the small- and mid-cap stocks. That much is clear in the final standing of the indices as the Russell 2000 and the S&P 400 Midcap Index outperformed, with both advancing 2.4% for the week. The reasons for the market's bullish bias were hard to gauge but a few items stand out in the assessment of this week's performance.
First, Monday marked the first trading day of a new month and it is not unusual to see a bullish bias prevail on the first day of the month, as that is a popular time for fund managers to put cash to work. To that end, the Dow, Nasdaq and S&P gained 94, 28, and 11 points that day. An encouraging reading in the employment component within the ISM Index helped fuel the buying activity.
Secondly, there was a willingness to believe that the Nasdaq, and particularly the tech sector, was primed for a bounce after such an extended period of weakness that was driven in part by market chatter that weaker than expected notebook demand would lead to a disappointing mid-quarter update from Intel. The chip giant to be fair didn't truly disappoint with its guidance. After all, it projected a yr/yr increase in Q1 sales in the neighborhood of 20%. It did, however, deliver a message that investor expectations should be dialed down a bit as it narrowed its revenue outlook to $8.0-8.2 bln from $7.9-8.5 bln and noted that demad for its Intel Architecture products is consistent with the lower end of normal seasonal patterns. The tech sector traded only modestly lower on Friday, though, which suggests the Intel "disappointment" had already been largely accounted for in stock prices.
Why the stock market held its own in the face of an undeniably weak employment report is a whole different nut to crack. Presumably, the market, which has been pre-occupied with the notion that weak job growth will prompt a slowdown in consumer spending, should have reacted in negative fashion. At the sound of Friday's opening bell, the indices did trade lower, but it wasn't long before they returned to positive territory. A rally in the Treasury market that saw the yield on the 10-yr note drop roughly 17 basis points to 3.85% provided a floor of support that attracted renewed buying interest in equities.
The dollar slipped against the euro in the wake of the jobs report, but moved higher versus the yen. There was nothing mixed about the greenback's weekly performance against those same currencies as it maintained the bullish disposition it has shown since mid-February. The weak jobs report, however, and the implication that interest rates are going to remain low in the U.S., is expected to sap some of the strength from the dollar's recent rally effort.
The buying efforts for the week were fairly broad-based from an industry perspective. Not surprisingly, the homebuilding group topped the best performing list within the S&P 500 as the drop in yield on the benchmark 10-yr note ignited hope that demand for new homes will remain near record levels. Other notable winners included the casino & gaming, airline, restaurant, brokerage, banking, and retail stocks. The latter were underpinned by a batch of remarkably solid same-store sales results for February. Meanwhile, the energy sector also assumed a leadership role as oil prices moved north of $37/bbl with concerns about supply and political unrest in Venezuela feeding the uptick.
Some of the more notable industry groups that failed to participate included railroads, application software, diversified chemicals, brewers, aerospace & defense, and advertising.
Two story stocks of note this week included Disney (DIS) and Martha Stewart Living Omnimedia (MSO). The former was in the spotlight with a contentious shareholder meeting culminating in the ouster of Michael Eisner as Chairman of the Board. His plight, though, seems almost trivial relative to that of Martha Stewart who late Friday was found guilty on all counts in her widely followed obstruction of justice case. The stock of MSO rallied as high as $17.00 on Friday, but following the verdict, traded down to a low of $10.50 before settling the week at $10.86.
Speaking of settling, Briefing.com expects the market to remain settled in the trading range it has been locked in since the end of January as it takes further time to consolidate the tremendous gains it achieved in 2003. In such an environment, there is likely to be ongoing sector rotation that keeps the market in a narrow range. Over the near-term, we see little need to chase highflying stocks, but with the persistence of the low interest rate environment and strong corporate profit growth, we are sticking by our long-term moderately bullish view for the stock market.-- Patrick J. O'Hare, Briefing.com
Index Started Week Ended Week Change % Change YTD
DJIA 10583.92 10595.55 11.63 0.1 % 1.4 %
Nasdaq 2029.82 2047.63 17.81 0.9 % 2.2 %
S&P 500 1144.94 1156.86 11.92 1.0 % 4.0 %
Russell 2000 585.56 599.54 13.98 2.4 % 7.7 %
Aeroflex (ARXX) 13.78 -0.38 : Priced 7 mln share offering at $13.75.
Conexant (CNXT) 7.42 +0.02 : Lehman upgraded Conexant to Overweight from Equal-Weight and raised their target to $10 from $6 based on their belief that the stock is undervalued at these levels; firm says the combined co will be a solid competitor in several end mkts (DSL, set-top, analog modem, WLAN), and should reap approx $25 mln/year benefit from improved cost efficiencies and another $25 mln/year in operating expense synergies.
QLogic (QLGC) 44.63 +0.79 : QLogic (QLGC 44.63 +0.79): Merrill Lynch reiterated their Buy rating on QLogic and added the stock to their Focus 1 list, cited: valuation at 23x their CY05 EPS est (stock had normally traded at over 30x next year's earnings), and firm believes the co's core HBA biz remains strong. Target is $65.
Rambus (RMBS 31.30 -0.29): Dow Jones reported that the staff of the FTC has appealed a judge's dismissal of the agency's case against Rambus. An FTC administrative law judge recently dismissed the FTC's case against the co, finding that the agency hadn't made its case that RMBS violated antitrust law. The staff appeal sends the case for review before the full FTC, which could schedule oral arguments this spring or summer.
IXYS Corp (SYXI 9.17 +0.12): Janney started IXYS Corp with a price target of $16. Firm believes co's shares will benefit from a favorable price environment in 2004 for its core discrete product line coupled with increased visibility in its integrated circuit products, which firm expect to ramp in 2005. Firm has outlined a solid cross section of IXYS' peers and has reached a mean average peak EDITDA price multiple of 11.9. This implies a 12-month target price of $16.
Credence Systems (CMOS) 11.85 +0.34 : Merriman Curhan initiated coverage of Credence Systems with a Buy rating and $30 target; firm believes that the co's multiple platforms are beginning to gain traction and mkt share, and believes that the co's pending acquisition of NPTest could double its exposure to key customers in the graphics and chipset mkt; firm also noted that the stock trades at 8.9x their FY05 EPS est, vs peers at 16.1x.
9:18AM Intel (INTC) 28.95 -0.70: Intel narrowed Q1 guidance after the close Thursday to $8.0-8.2B (+18.5-21.5% Y/Y) and gross margin of 60% +/- 1 pt (approximately +800 bps Y/Y) vs. prior guidance of $7.9-8.5B and 60% +/- a few pts. Operating expense is expected to come in at $2.3B.
Inventory build in Asia-Pacific and Japan in Q4 resulted in demand shaping up to be a little less than expected in the first half of the quarter but other geographies continue to be better than seasonal. Excess has been worked through. Company is building for a flat, not down quarter for the rest of the world.
Enterprise recovery continues at a steady pace. Outlook is consistent with management's view over the past few months that the recovery in IT spending will occur at a steady rate rather than as a surge in demand as some analysts have been forecasting. This meshes with the revenue patterns we observe across the spectrum of technology firms, as well as the slow pace of tech jobs creation. The market for IT professionals remains challenging with firms continuing to eliminate permanent positions in favor of outsourcing. A strong rebound in tech expenditures is likely to coincide with a meaningful pickup in tech hires. We continue to think the pace of enterprise spending will pickup in H2 and slowly build into 2005.
Flash business is above expectations. Prescott production is scaling to expectations. 300mm is ramping. 90nm Dothan is on track for Q2. All of these will drive improved margins.
Shares are, based on our inverted EVA / DCF model, priced for sustained low 20% growth assuming steady Y/Y improvement to 39-40% operating margin.
As we have previously noted, tech sector valuations are high, clouding the picture for Intel shares. We think Intel will outperform the market's expectations given the revenue growth and margin expansion opportunities that management has nurtured into and through the downturn.
Intel is aggressively moving silicon outside of the computer into consumer electronics from smart cameras to set-top boxes to TVs. A number of these new digital consumer electronics, which include 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, are sampling, and slated to reach the market in 2004 and 2005.
Patient investors will be rewarded. We would continue to accumulate position over time. Intel is part of the Active Portfolio.--Ping Yu, Briefing.com
9:16AM Qualcomm (QCOM 62.57): Deutsche Bank upgrades QCOM to Buy from Hold and raises its price target to $70 from $58, citing the company's increased WCDMA handset forecast, the acceleration of HSDPA, and expected positive news flow pertaining to WCDMA and CDMA markets.
What It Means:
At Deutsche Bank, a Buy rating reflects the analyst's expectation for the stock's total return to appreciate 10% or more over a 12-month period.
Deutsche Bank is a top-tier firm and, all else equal, its upgrade would likely invite buying interest, particularly because this is the first upgrade since December versus two downgrades in the same time frame... however, the expected weakness in the broader market following the disappointing jobs report, and Intel's tepid mid-quarter update, will lessen the market's enthusiasm for the call.
The analyst cites fundamental reasons for the more optimistic view, saying CDMA market share will only drop to 75% at the end of FY05 versus earlier assumption of 70%. For WCDMA, estimates QCOM captures 14.1% of the chipset market in FY04 (was 3.8%), 19.6% in FY05 (was 13.1%) and 30.0% in FY06 (was 25%). The analyst indicates QCOM should be a core holding for investors, as it is almost guaranteed to play a major role in the advancement of 3G technologies.
The analyst raises estimates above the consensus view. For 2Q04, sees EPS of $0.47 versus previous estimate of $0.38 and the consensus of $0.47. For 3Q04, looks for EPS of $0.42 versus previous estimate of $0.35 and the consensus of $0.38. For FY04, sees EPS of $1.82 versus previous estimate of $1.61 and the consensus of $1.74. For FY05, looks for EPS of $1.88 versus previous estimate of $1.63 and the consensus of $1.83.
The effect of the upgrade may be mitigated by the recognition that the analyst has had an equivalent of a Hold rating on QCOM since 6/14/02, all through the stock's appreciation from roughly $28. The current ratings distribution according to Multex shows 6 analysts with an equivalent of a Buy rating, 8 analysts with an equivalent of an Outperform rating, 19 analysts with an equivalent of a Hold rating, and 2 analysts with an equivalent of a Sell rating.
Sidenote: Firm also upgrades PWAV to Hold from Sell and raises its price target to $9 from $7.50 based on the company's increased infrastructure forecast and expected market share gains from its largest customer, Nortel Networks. -- Victoria Glikin, Briefing.com
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