dell selling..
<Picture>Tech Stock Analysis
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Updated for: March 16, 1998
Please note: Briefing.com is provided as an information service only. Charter Media, Inc. and Briefing.com do not make specific trading recommendations or provide individualized investment advice. Readers should make investment decisions based on thorough research and their own investment criteria. See Disclaimer.
General Commentary
It's been a great run, but the tech-laden Nasdaq is beginning to tire under the weight of slowing earnings growth... That the tech sector didn't collapse when the likes of Intel, Motorola, Compaq and others announced that earnings in the current quarter will fail to live up to expectations, underscored the degree of optimism built into this market... But the sector can only go so far on momentum alone... From the low on January 12th to Friday's high, the Nasdaq climbed an amazing 21.5%... In other words, we've experienced a year's worth of gains in a matter of weeks... Even if the earnings news were great, there is no way the market could sustain this pace... The index needs to take a break, and mounting evidence of an earnings slowdown will finally wear down market bulls... At this stage it is too early to call for anything but a corrective retreat in the neighborhood of 5%-7%, or 90-125 points off Friday's high... Though recent high-flyers like Lucent, Yahoo!, AOL and Dell will take their lumps during any sector-wide retreat, the bigger losers will be those companies that are already exhibiting poor relative strength and momentum... Intel, Compaq, Andrew and National Semiconductor for example.
Earnings reports start to trickle in this week... On the calendar are Micron Technology (M), Micron Electronics (M), Solectron (M), Jabil Circuits (Tu), SpeedFam (W) and Tektronix (Th)... Aside from Tektronix, uncertainty defines the earnings status of the these companies... If we're right about the changing (s/t) mood of the market, disappointments will be met with selling... For a more complete listing of companies reporting this week, plus consensus estimates, see Briefing's Earnings Calendar.
Industry Briefs
Computer Systems & Peripherals | Networking | Software | Semiconductor | Chip Equipment | Telecom Equipment
Computer Systems & Peripherals
Brief: Focus this week shifts from the OEMs such as Compaq, Hewlett-Packard and Dell, to the CEMs such as SCI, Solectron and Jabil Circuits... SCI took a beating last week amid growing concerns over revenues, thereby creating a hostile environment for the latter two companies, both of which are due to report earnings this week... Street looking for SLR and JBIL to report gains of $0.41 and $0.51, respectively... But lower ASPs and fears of a slowdown in PC growth could prove problematic for the next couple quarters... Steve Jobs of Apple Computer expected to unveil 400-megahertz PowerMac at this week's Seybold Seminar in NYC... Seminar for traditional and Internet publishers... More good news out of company that has been on a roll since start of year... Insiders remain active sellers of Dell stock.
Computer Networking
Brief: What's wrong with Bay Networks... While the market/tech sector have been driving to new highs over the past weeks, BAY has been in a slump... Since peaking on 2/27/98 at 35 1/4 the stock is down over 22%... Lack of earnings warning or negative news makes decline a little puzzling... Were analyst and investors disappointed in what they saw from Bay at Networking conference - apparently... However, if the concerns were serious, they would be reflected in the earnings estimates... But according to Zacks, there has been no change to the consensus estimate over the past month... In addition, the 3 most recent estimates for this quarter have been right on the consensus of $0.28... While the price action suggests that street concerned over earnings, earning data tell a different story... Price action usually more telling than earnings data.
Computer Software & Services
Brief: Though Oracle ended Friday's session up 1 1/2 in reaction to its better-than-expected earnings report, we find it interesting that stock closed near the session low and well of intra-day high of 31... Briefing maintains that even after good Q3 number, earnings outlook for company remains clouded by Asia and Y2K crisis (IT dollars being diverted)... Consequently, 30-32 area represents fair value... Gruntal also noted that investors shouldn't base long-term trend on strong third quarter numbers... Company upped its FY98 estimate to $0.96 from $0.93 but kept hold rating... PeopleSoft (+30.5% ytd), Parametric Technology (+39.8%), AOL (+41%) and Yahoo! (+20.4%) are among the stocks due for some profit-taking... It's never good when a stock fails to rally on what should be considered good news... Broderbund is down over 10% year-to-date despite strong sales of "Raven"... Red flag points to further near-term declines... Next support is at 20 3/4.
Semiconductor:
Brief: Earnings are the story in this industry and so far the news has been all bad... Stocks have held up relatively well but that has been a function of market's underlying momentum... As momentum fades (even if temporarily), industry will begin to come under increased selling pressure... Those companies that have warned - Intel, National Semi and Advance Micro - will pace retreat... Micron Electronics, which is up over 27% this year on rising DRAM prices, to report earnings after today's close... Street expecting company to post a loss of $0.16... Headline figure less important that company's forecast re: future... Based on recent history the news is more likely to be bad than good... Briefing sees stock back in the 23-20 range over next 6-months.
Semiconductor Equipment
Brief: Group among the best performers so far this year on aggressive bargain hunting... But how much higher can these stocks climb when troubles in Asia are just beginning to be felt... Bulls argue that stocks are cheap based on earnings due in FY99... Maybe, but we aren't smart enough to know how events in Asia will unfold three weeks from now yet alone one year from now... Based on prior 12-mo earnings and estimated FY98 earnings (which we maintain are still too optimistic), these stocks are fully priced... As such any negative change to the fundamental outlook will result in renewed selling... Teradyne, Novellus, Kulicke & Soffa are all vulnerable to sizable pullbacks... SpeedFam due to report earnings on Wed.... Consensus estimate for the quarter = $0.31.
Telecommunications Equipment
Brief: Despite group's strong gains year-to-date, Briefing remains bullish on outlook for this industry based on enormous demand for higher bandwidth... Need to be one-stop shop and increased overlap with networking industry, likely to trigger wave of consolidation in the telecom-equipment/networking industries... Cisco's purchase of NetSpeed last week just tip of the iceberg... PairGain, Aware, Qwest Communications and At Home are just a handful of likely takeover targets.
[ Index ]
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