Two more good ones...
ASIAN EXPOSURE--OUT OF THE FRYING PAN AND INTO THE WOK
08:15am EST 29-Oct-97 BT Alex. Brown Incorporated (P. RUEPPEL/M. CARBOY)
COMPAQ COMPUTER (CPQ): STRONG BUY
DELL COMPUTER (DELL): STRONG BUY
EMC CORPORATION (EMC): STRONG BUY
HEWLETT-PACKARD COMPANY (HWP): MARKET UNDERPERFORM
NETWORK APPLIANCE (NTAP): STRONG BUY
PARAMETRIC TECHNOLOGY (PMTC): BUY
SMALLWORLDWIDE PLC (SWLDY): BUY
SPLASH TECHNOLOGY HOLDINGS (SPLH): STRONG BUY
Asian Exposure - Out Of The Frying Pan And Into The Wok
Analyst 52-Wk
Stock Price Price Earnings Per Share
Ticker Rating 10/28/97 Range 1996A 1997E 1998E
CPQ 1 67 1/4 80-26 $1.86 $2.75 $3.65
DELL 1 91 104-19 0.68 1.38A 2.48
EMC 1 57 5/16 65-24 1.58 2.08 2.65
HWP 4 63 1/4 73-43 2.54 2.95 3.25
NTAP 1 50 5/8 60-21 0.42 0.54A 1.15
PMTC 2 47 7/16 64-37 1.19 1.64A 2.10
SPLH 1 41 7/8 48-13 0.90 1.26A 1.45
SWLDY 2 25 1/8 26-11* $0.11 $0.42A $0.75
*Since 11/12/96 IPO priced at 11.
Ratings 1-Strong Buy 2-Buy 4-Market Underperform
SUMMARY
-- We see little near-term impact from Asia for our covered companies as a
whole.
-- In general, demand represents a small percentage of overall business,
and supply issues haven't materialized.
-- Of the segments we cover, it appears that the more mature CAD/CAM
market has the greatest exposure to an Asian slowdown.
-- PCs in general are underpenetrated in SE Asia and Japan, and are
relatively unaffected as they represent significant operating leverage for
emerging businesses.
COMMENTARY
Given the significant issues in S.E. Asia, and the subsequent volatility in
U.S. stocks, we have been looking into the relative impact a slowdown in
these overseas economies would have on the fundamental performance of the
companies in our group. Apart from specific instances noted below we
believe that the Far East represents a small portion of business, and that
much of the potential lost business may be offset by lower component prices
coming from the region. While the region does represent an important leg
of growth for many companies longer term, it is our view that most
companies will weather the storm near term. In the near term, we see Japan
as continuing to dominate the end-user market in the region. Furthermore,
smaller Asian countries that are more likely to be affected by currency and
economic turmoil are, we believe, likely to place highest priority on
technology infrastructure advancement, thus cushioning any slowdown that
may be seen in the component-related industries.
COMPAQ COMPUTER (CPQ)
3.2% of revs to Japan; 5.7% to Asia (ex-Japan). We see no production
interruption issues here, but do note that consumer slowdown in "first
world" Asian countries could require deft and "accomplishable" management
moves to prevent adverse income statement impact.
DELL COMPUTER (DELL)
7% of sales into Asia Pacific region with Japan accounting for roughly 60%.
Not seeing any manufacturing issues and note that business slowdown in
Japan could slow DELL's very high revenue growth rate in that market.
EMC CORPORATION (EMC)
10% of sales into Far East with "majority" in Japan. All products and most
components are dollar-denominated. See no contract risk and minimal
business slowdown risk for EMC due to turmoil
NETWORK APPLIANCE (NTAP)
Approximately 20% of sales are international with the considerable bulk of
that business being done in Europe. While the "first world" Asian markets
represent a long-term growth opportunity for NTAP, we believe current risk
to near-term results or our estimates from Asian market upheavals to be
negligible as the business is nascent. We also believe customers view file
servers as essential elements of newly constructed networks given the
considerable pressure for maximum network performance for minimum
investment.
HEWLETT-PACKARD (HWP)
21% of sales is into Asia Pacific, Japan and ROW. Believe AP responsible
for 9%, Japan 9% and ROW 3% of total sales. Believe picture complex at
HWP: natural hedges (purchased components) can mitigate currency
translation, but impact of economic slowdown not clear. While many of the
products imported into AP area and Japan are "key progress" items, this
"status" may not offset general economic slowdown. Believe semiconductor
industry direction will be direction for HWP in this area.
PARAMTERIC TECHNOLOGY (PMTC)
Approximately 18% of sales into Asia Pacific. Estimate 90% of that into
Japan. Believe PMTC software sales tied closely to manufacturing and
automotive industries. PMTC's plans to re-accelerate the Japanese business
could be thwarted if Japanese manufacturing slows, substantially leading to
further difficulties in continuing a pattern of sequentially increasing
EPS.
SPLASH TECHNOLOGY HOLDINGS (SPLH)
Approximately 50% of revenues to Fuji-Xerox of which 90+% is sold into
Japan - negligible exposure to SE Asia. Noted increasing order strength as
of the beginning of this week.
SMALLWORLDWIDE plc (SWLDY)
Between 2% and 15% of revenues typically sell into Asia Pacific.
Management confirms that transactions are unlikely to be affected as they
are viewed as essential to infrastructure development and telecomm
expansion. Fully hedged on FOREX exposure for locally denominated
contracts.
==========
Wall Street Wonders If Dell, Intel Are Cheap Or Overpriced
Dow Jones News Service via Dow Jones
By Christopher Grimes
NEW YORK (Dow Jones)--In a jittery technology market, even Dell
Computer Corp. DELL has taken some hits.
And its stock has stumbled for reasons beyond the recent decline of
the broader markets. For the first time in a few quarters, investors
are beginning to question the stock price of the high-flying computer
company.
There have been rumors - disputed by several analysts - that Dell
has curbed its appetite for computer parts, such as semiconductors,
which led to speculation that orders for its computers were slowing.
And then there's its share price, which hit a high of 103 7/8 Oct.
16, but has since fallen. It closed at 83 1/2 Wednesday and was
recently trading at 80 3/4.
Some analysts say Dell has been particularly hard-hit because
investors were concerned about its valuation - especially given the
chatter that its phenomenal earnings run is slowing.
So is the stock properly valued right now, or is it cheap? As with
some of the other big technology stocks, the jury is out on that
question. Some analysts are calling Dell, Compaq Computer Corp.
and Intel Corp. bargains at post-skid prices, while others disagree.
Since Intel supplies chips to about 90% of the world's PCs, and Dell
and Compaq are the darlings of the PC sector, these companies arguably
can be viewed as barometers of the industry.
David Wu, an analyst at ABN/Amro Chicago Corp., maintains a buy
rating on Dell and Compaq, both of which have been clobbered on Wall
Street lately in spite of taking market share from other PC companies
this year.
For Wu, the cheaper share prices of the two PC companies are
attractive. "Periods of extreme fear are usually a good buying time,"
Wu said of the recent environment.
Dell has been on a seemingly uninterrupted upward run for much of
the year, which Wu said had less to do with fundamentals and more with
investor psychology.
"There was a period when Dell stock was going up $5 every day," Wu
said. "That was about as rational as the current selling."
But Wu's opinion of Intel is different. Although its shares have
declined from 91 13/16 on Oct. 14 - before it reported its third
quarter earnings - to its Wednesday closing price of 80 1/4, he
hesitates to call it a buying opportunity.
Wu has a hold on Intel, judging that its stock is likely to drop
some more.
Intel forecast a lackluster fourth quarter when it reported its
earnings, and Wu said the share price is likely to fall more at the
end of the fourth quarter. At that point, he said, Intel will be a
bargain.
On the whole, the opinion about Intel is mixed. While UBS Securities
downgraded the stock to hold from buy Thursday, other analysts say the
stock is looking attractive now.
Dan Niles, an analyst at BancAmerica Robertson Stephens, has a
mirror-image opinion to that of ABN Amro's Wu when it comes to
Intel and Dell.
"Now is a good time to look at Intel stock," he said. Its forward
price-to-earnings ratio is about 19, and he thinks orders are going to
pick up after price cuts go into effect in November. He has a buy rating on
Intel.
In contrast, he said Dell has a future price-to-earnings ratio of
about 25, down from about 30 before the slide started. He has a
long-term-attractive rating on Dell, but said its shares are pricey right now.
"I think for Dell, the only problem is that to some extent it is a
victim of its own success," Niles said. "We like the company a lot, but we're
not keen on the stock at current levels."
Niles, like Wu, is recommending Compaq, since its valuation is lower
than Dell's, at about 19 times next year's earnings. Dell's revenues have
been growing at a significantly faster rate than Compaq, which is the
largest seller of PCs.
Of the rumors that Dell is having to push out its orders for
computer components, several analysts called them "buncombe."
"We checked with major component suppliers and were told there was
not any change in their order rates nor have they pushed back any orders,"
said PaineWebber analyst Walter Winnitzki.
A Dell spokesman said he couldn't comment on the rumors because the
company has entered its quiet period going into its Nov. 24 earnings
announcement.
Winnitzki said Dell's management has been "upbeat" going into the
quiet period. And, like some of his counterparts, said much of the pressure
on technology stocks, including Dell's, has to do with hefty multiples.
"I think we're in a situation where tech seems to be more volatile
than the rest of marketplace, and the multiples have run up to levels that are
less forgiving," Winnitzki said.
In another down day for tech stocks, shares of Intel, Dell and
Compaq sank. UBS lowered its rating on Intel to hold from buy,
citing sluggish chip demand. BT Alex Brown lowered ratings on
Compaq and Dell to buy from strong buy.
Dell, the most actively traded stock on the Nasdaq exchange,
recently was down 4 1/2, or 5.4%, to 79 on volume of 24 million shares.
Intel stock fell 4 1/4, or 5.3%, to 76 3/16, and Compaq fell 2 3/16, or 3.4%,
at 61 1/4. |
