From Briefing.com: 6:09PM Weekly Wrap: Frustration could be heard all over the market - and globe - as the spike in oil prices, worries about inflation, talk of rising interest rates, and outbreak of global violence gave buyers little reason to get back into stocks. The end result was a relatively flat finish for the major indices - and a continuation of the 4-week bearish trading pattern - that was achieved on equally unimpressive volume levels.
The above concerns arguably came to a head early in the week. On Monday, India's stock market tumbled 11% amid fears that the new government's (aligned with communist parties) approach to economic reforms would stifle corporate growth. Other geopolitical events also rocked the world indices - a bomb went off in Turkey and the head of Iraq's Governing Council was killed in a suicide bombing. The combination of this sent the Dow plunging to its lowest close since December 5, and the price of crude oil soaring to its highest price ($41.55/bbl) in 21 years. Bonds and gold were the only winning asset classes, the former setting itself up for a higher weekly finish after 9 weeks of losses.
The stock market spent the rest of the week arguably in aftershock, trading in lackluster fashion on anemic volume totals (the Nasdaq had it lowest volume day of the year on Tuesday). Perhaps best demonstrated by Wednesday's whipsaw action, investors used interim periods of strength as opportunities to take profits - cognizant of the indices' tendency to change on a dime. Traders were unable to generate much enthusiasm for stocks with the Dow and Nasdaq still trading below their 200-day simple moving averages.
In effect, the theme of the week was the same of weeks' past: solid earnings reports (this time from Applied Materials (AMAT) and Hewlett-Packard (HPQ) and economic data (only a few reports out with results summarized on Briefing.com's Economic Calendar) taking a backseat to broader macroeconomic concerns. Worries about an imminent FOMC tightening were again in play, although Fed officials did their best to placate the markets. In probably the most important speech since the Fed's last policy statement, Fed Governor Bernanke said that the 'markets have responded to recent data on payrolls, spending, and inflation by bringing forward a considerable amount of future policy tightening into current financial conditions' and added that because of this 'a significant portion of the financial adjustment associated with the tightening cycle may already be behind us.'
As Bernanke implied that the markets have already discounted multiple tightenings, treasuries and interest rate sensitive stocks rallied. REIT, basic material, gold, and banking posted the largest gains of the week as investors rotated money into those underperforming areas, and out of groups like drug, hospital, wholesale distributor, and oil driller (the beneficiaries of the rise in interest rates/crude oil). Apparel, department store, and home improvement retailers were also strong thanks to better than expected Q1 (Apr) earnings reports from Gap Inc (GPS), Nordstrom (JWN), Home Depot (HD, and Lowe's (LOW).
Next week, market participation is shaping to be up similarly weak with little on the earnings calendar and the Memorial Day holiday falling next Monday May 31. This weekend's G-7 meeting has managed to fly under most radar screens, but the 'informal' gathering of OPEC representatives in Amsterdam this weekend has (understandably) not. Saudi Arabia is out with a plan to increase production by more than 2 mln barrels a day - the prospect of which sent the price of crude oil below the key $40/bbl mark Friday.
With the Dow finishing the week under the 10,000 mark for the first time this year, Briefing.com maintains our neutral near term view of the market. Apprehension ahead of the FOMC's first interest rate increase, concerns about the global economy, and even questions surrounding the US's involvement in Iraq are apt to keep the indices locked in their current trading ranges. Investors should continue to use conservative investing/trading strategies over the intermediate-term. -- Heather Smith, Briefing.com
Index Started Week Ended Week Change % Change YTD
DJIA 10012.87 9966.74 -46.13 -0.5 % -4.7 %
Nasdaq 1904.25 1912.09 7.84 0.4 % -4.6 %
S&P 500 1095.70 1093.59 -2.11 -0.2 % -1.6 %
Russell 2000 543.76 545.81 2.05 0.4 % -2.0 %
4:06PM Chipmos Technology files 28.75 mln share offering (IMOS) 8.31 +0.35: Co files a Form F-3 to offer 17,500,000 common shares, and a selling shareholder is offering an additional 7,500,000 common shares.
2:12PM Maxtor nears 11 mo low from early May at 6.45 (MXO) 6.50 -0.16: -- Technical --
1:53PM Genesis Microchip color (GNSS) 15.00 +1.60: -- Update -- Pacific Growth notes that GNSS won a second ruling against MRT and Trumpion for patent infringement (12:33). Firm notes that in a previous ruling the ITC judge ruled that GNSS's patents were valid and enforceable, but that MRT and Trumpion were not believed to infringe. Firm says that guidance from GNSS does not include any favorable impact from any of the ITC rulings, but clearly there will be a benefit. Firm says that the one sure thing they know is that today's ruling is good for GNSS, and they believe the revs and profitability from the Monitor mkt are clearly going to be better than they were prior to the rulings. Reiterates Overweight rating on GNSS.
12:33PM Genesis Microchip wins patent infringement case against Media Reality and Trumpion (GNSS) 14.25 +0.85: Co announced that the U.S. International Trade Commission (ITC) has issued an initial determination that Media Reality Technologies and Trumpion Microelectronics both infringe GNSS' U.S. Patent entitled "Method and Apparatus for Upscaling an Image in both Horizontal and Vertical Directions". As a result of today's ruling, the ITC is expected to issue an exclusion order preventing the importation of Media and Trumpion's display controllers into the U.S., as well as monitors and boards containing these products.
8:16AM UTEK downgraded to Peer Perform at Thomas Weisel 15.74: Thomas Weisel downgrades Ultratech (UTEK) to Peer Perform from Outperform. There are two reasons for increased caution on the near-term revenue potential: (1) the co's revenue growth trajectory in the current semi equipment upturn does not appear to be keeping pace with its peer group, and (2) the recent decision by INTC to adopt multiple smaller cores in its processors creates increased uncertainty around the timing of potential adoption of UTEK's laser processing technology by the semi industry.
7:24AM Nokia expands research & development in China (NOK) 13.15: -- Update -- Co announces a significant expansion of its R&D undertakings in China. This expansion includes the launch of a Nokia Postdoctoral Program, the creation of a unit to promote open standards and technology localization, and the establishment of a CDMA R&D facility in Beijing. The announcements also include a plan to expand the scale of product design and development for Nokia mobile phones.
3:54PM Marvell Technology (MRVL) 43.16 +3.33: Marvell Technology posted Q1 results after the close Thursday. The fabless provider of analog, mixed-signal and digital signal processing semiconductors for the broadband communications and storage markets printed pro-forma EPS of $0.34 on revenue of $269.577MM (+60.2% Y/Y) vs. Reuters Research consensus at $0.32 on revenue of $267.58MM. GAAP EPS was $0.10.
The company experienced growth across a number of our products despite normal seasonality in some end markets. The company had four 10% customers: Intel, Samsung, Toshiba and Western Digital.
Gross margin declined 219 bps Y/Y to 52.6%. Operating margin increased 389 bps Y/Y to 19.6%.
Management is encouraged by ordering patterns. Guided for Q2 revenue of $297MM (+76.5% Y/Y). Consensus EPS is at $0.33 on $281.60MM. Gross margin is expected to be down 25 bps Q/Q due to product mix. F05 revenue is projected to be $1.200-1.225B (+34.6-49.4% Y/Y). Consensus EPS is at $1.39 on $1.166B. Gross margin is forecast to be 52%, +/- 50 bps. Pro-forma operating expense is expected to be 31-33% of sales.
The following table shows price multiples and Y/Y growth rates for MRVL compared against industry comps within the semiconductor group. Company *P/SG **P/OPG P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
Marvel Tech (MRVL) 2.7 52.3 6.3 5.7 4.5 3.7 42.2 21.1
Agere Systems (00C) 1.4 (65.5) 1.9 1.9 1.6 3.7% 9.4% 14.7%
Analog Devices (ADI) 3.7 20.7 7.6 6.4 5.3 26.3% 36.8% 21.4%
Atheros (ATHR) 1.5 19.5 n/a 2.9 2.2 n/a 32.4%
Broadcom (BRCM) 2.7 (15.9) 6.5 4.7 4.0 58.4% 59.3% 17.2%
Conexant (CNXT) 1.0 (11.2) 2.4 1.5 1.2 34.1% 92.7% 20.9%
Intel (INTC) 3.0 13.6 5.6 5.2 4.7 17.8% 13.8% 11.1%
International Rectifier (IRF) 1.6 20.9 2.6 2.4 2.0 18.3% 21.4% 20.8%
Intersil (ISIL) 2.6 32.5 4.8 4.7 4.0 18.4% (2.0%) 16.6%
Linear Tech (LLTC) 7.1 15.6 15.8 15.1 11.1 26.4 27.2% 36.3%
Maxim Integrated Circuits (MXIM) 6.0 17.5 11.6 10.6 7.8 15.4% 24.8% 35.3%
National Semiconductor (NSM) 2.4 28.4 4.0 3.7 3.0 10.2% 17.5% 22.0%
PLX Tech (PLXT) 3.9 (175.7) 8.1 6.6 5.3 24.1% 33.2% 23.8%
STMicroelectronics (STM) 1.5 56.6 2.5 2.1 1.8 16.2% 23.9% 13.6%
Texas Instruments (TXN) 2.5 26.2 4.1 3.4 2.9 20.9% 32.1% 15.6%
Vitesse Semiconductor (VTSS) 2.9 (20.0) 5.5 4.6 3.4 27.3% 48.7% 36.0%
Semiconductors 2.5 29.7 4.1 n/a 18.2% n/a
*Normalized P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of May 14, 2004.
**Normalized P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of May 14, 2004.
MRVL shares are, based on our inverted EVA / DCF model, priced for sustained lower 20% revenue growth from F06 assuming 25% operating margin. There is room for upside.
Management is seeing a pickup in the enterprise market, which contributes the majority of revenue and includes business PCs, enterprise networking, enterprise storage and enterprise wireless. The company is enjoying strong design activity in the consumer market, which includes consumer PCs, consumer wireless, small form factor drives and the SOHO market.
In the enterprise market, opportunities within the the company's traditional storage market is substantial at over $3B. In the consumer market, MRVL is winning high-volume designs for a variety of applications including WLAN and storage.
MRVL is driving adoption of WLAN (wireless-local area network) and small form factor drives into consumer electronic devices, including cell phones, digital cameras, gaming devices, MP3 players and speakers. MRVL is also strongly positioned in gigabit Ethernet and is expanding the company's total addressable market opportunity by entering the large and rapidly growing $5B market for power management solutions. Management's three year target is to get consumer to 50% of revenue.
Additionally, the company recently announced high-performance embedded microprocessors that allow MRVL to offer customers leading edge SoCs running at 500 MHz and beyond.
We would continue to accumulate shares.--Ping Yu, Briefing.com
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