<< General Commentary
‹Hewlett-Packard (HWP) warns - again... See industry brief below for
more.
‹Computer Associates (CA +1), Compuware (CPWR +6/7), PeopleSoft (PSFT
+1) and Qualcomm (QCOM +6/7) reported earnings after the close... In the
parenthesis we have included the stock symbol and by how much the
company beat or missed street estimates (in cents)... "--" equates to an
as expected report... For more see industry briefs below.
Nasdaq couldn't quite tie the record for posting consecutive record
highs, as its winning streak came to an end at 9 - one shy of the record
set last July... Not for lack of trying, as index spurted higher off the
open on continued strength in the Internet stocks... But techs succumbed
to a late round of profit-taking... Sell-off triggered by comments from
Dell's CFO regarding declining ASPs.
Look for techs to extend their retreat over the next few days as
leadership stocks have simply climbed too far too fast and are now
extremely overbought. The spread between current prices and the
long-term moving averages for the following stocks is abnormally, and
unsustainably, wide: Amazon (AMZN), America Online (AOL), Cisco (CSCO),
Dell (DELL), Lucent (LU), Microsoft (MSFT) and Yahoo! (YHOO)... Should
be noted that this list represents only a fraction of the stocks
exhibiting overbought tendencies... Sector is either headed into a
several week period of downward consolidation, or a short, sharp
pullback... We expect the former, but wouldn't discount the latter.
Other companies to report earnings this week include, Amazon (W), Lucent
(W), Stratus (W), T (Th), BMC Software (Th), Gateway (Th), LSI (Th),
Open Market (Th) and Nokia (F)... For a full list of firms scheduled to
release their results this week/month, see our earnings calendar.
Industry Briefs
Computer Systems & Peripherals | Networking | Software | Semiconductor |
Chip Equipment | Telecom Equipment
Computer Systems & Peripherals
‹Hewlett-Packard (HWP +3/16) issued a earnings warning after the close,
noting that Q3 revenue and earnings continue to be negatively impacted
by slowdown in Asia... Sees Q3 in line with to below year-ago level in
which company earned $0.58... Street had been looking for a gain of
$0.62... Represents the 9th time in 10 quarters company has missed
estimates... Stock down big in after hours trading.
‹IBM (IBM +6 1/16) Proving once again that expectations mean more than
actual results, traders jumped on fact that big blue beat the consensus
view by one cent in its latest quarter and bid the stock sharply
higher... Gerstner's generally upbeat forward looking comments also
underpinned stock... Merrill, Gruntal and Prudential among the
investment firms either upgrading ratings, estimates or both... Merrill
also upped its price target to 150... Stock traded at a new 52-wk high
on decent volume.
‹Dell's (DELL -5 1/8) CFO noted that average selling prices (ASPs)
should continue to slide in the current quarter... Remember it was
dissatisfaction with the company's ASPs in its last report that
triggered Dell's mid-May retreat... But component prices falling faster
than ASPs so don't expect Dell to disappoint... Company is a juggernaut.
‹Seagate (SEG +1/16) ousted Chairman & CEO Alan Shugart, a co-founder,
and named President Stephen Luczo as the new CEO... Management change
should be a long-term positive.
Computer Networking
‹Yesterday we highlighted the abnormally wide divergence between the
price of Cisco (CSCO) and its long-term moving averages... Typically,
such divergences presage a pullback... Cisco fell more than 4 points
Tuesday... Additional n/t declines are likely.
‹We erred however in predicting gains for Xylan (XYLN -6) based on its
better than expected earnings news... At the time of our report, the
company had yet to warn of a revenue slowdown in its Q3... XYLN noted
that sales made through its largest distributors may drop as inventories
are worked down... Co. indicated that IBM had about 6-7 weeks worth of
sales up from 4-wks at the end of Q1... Plans to slow shipments to IBM
to bring number back to the 4-wk area... In order to offset reduced
business to IBM XYLN must pick up sales to smaller companies... IBM and
Alcatel accounted for nearly 41% of XYLN's total sales... Anxiety over
sales outlook will keep stock on defensive over short-term...
Longer-term this is a minor problem... Company's recent efforts to
broaden client base should alleviate such problems down the road.
‹Xircom (XIRC +2 9/16) Back to the positive, XIRC responded about as we
expected to its better than expected report... Stock broke through
pivotal resistance on strong volume and is now well positioned for near-
to intermediate-term test of the low- to mid-20s... First Albany upped
its rating to buy from neutral, with a price target of 25.
Computer Software & Services
‹Computer Associates (CA) managed to beat estimates by one cent in
reporting a gain of $0.34, but that's were the good news ended...
Company went on to warn that revenues and earnings growth would likely
slow for the next several quarters... Blamed Asia and Y2K problem for
expected slowdown... Market anticipated trouble, as the stock fell 3 1/2
points ahead of its report.
‹Net stocks slumped on aggressive profit-taking late in the day...
Search engine and ISPs were the big losers.
‹Microsoft (MSFT) another one of the tech leaders trading well above its
long-term moving average... Valuations also excessive by historic
standards especially when you consider that company's growth is slowing
from prior years... Recipe for near-term weakness.
‹Parametric (PMTC) slumped to a new low, falling 1 9/16... Stock looking
awfully cheap to us, but likely to remain dead money for at least
another 3- to 6-months... If you're willing to wait out the near-term
uncertainties, stock a good candidate for better-than-market long-term
capital appreciation.
‹Compuware (CPWR) easily surpassed street estimates, posting a gain of
$0.30... However, beating estimates hasn't been enough to excite the
street for a number of the Y2K companies recently... Same fate could
befall CPWR, though Briefing still likes companies long-term
prospects... As such traders might want to use near-term weakness to
(re)enter the long-side.
‹Amazon.com (AMZN) due to report results today... Stock has soared in
anticipation of good news.
Semiconductor
‹And the last shall be first... Badly slumping chip sector bucked
Tuesday's bearish trend to post narrow gains... Group benefitted from
light rotation out of overvalued tech counterparts... Nevertheless,
lingering earnings uncertainties likely to keep group from keeping pace
with the market over next few months... As such Briefing lowered its
near-term rating on the group from market perform to slightly
underperform.
‹Texas Instruments missed the street estimate by two cents on a 15.2%
drop in revenues, but ended the day up 2 points... Last quarter's
weakness due primarily to recently sold DRAM business... Margins in the
company's existing DSP business posted a nice gain... Traders chose to
focus on the positive future than the troubled past... This is one time
we agree. We continue to rate the stock when of the better plays in the
difficult chip group.
‹Altera (ALTR), Advanced Micro Devices (AMD), LSI Logic (LSI) and Analog
Devices (ADI) also posted modest gains... LSI's gains occurred despite
fact that NationsBanc Montgomery Securities downgraded stock to hold
from buy.
Semiconductor Equipment
‹In recent days we have noted the group's resilience to profit-taking
despite generally bad news on the earnings... It is our contention that
the industry's improved relative strength suggests that a short-term
trading opportunity is at hand... Bad news is out and bargain hunters
haven't forgotten group's strong gains during last quarter's earnings
season.
‹Gainers were led by ETEC Systems (ETEC), Applied Materials (AMAT),
Novellus (NVLS) and Teradyne (TER).
Telecommunications Equipment
‹Lucent (LU) due to report earnings prior to today's open... Consensus
estimate calls for gain of $0.27, though whisper number in the
$0.30-$0.32 range... Stock up sharply in advance of number... Barring a
blow out number (above $0.32) stock likely to fall victim to sell-on-the
fact reaction to its earnings. For more see Story Stocks... Separately,
LU announced a 5-yr strategic agreement with SBC Communications'
telephone subsidiaries valued at up to $2.4 bln.
‹Qualcomm (QCOM) posted Q3 gain of $0.33, 6 to 7 cents above
estimates... Revenues surged 68%... Just a plain old blow out number...
Stock headed higher today.
‹Nortel (NT) jumped 1 3/4 in response to earnings of $0.41, one cent
above estimates.... Revenues rose 9.8%, while orders jumped 21%... Big
task ahead is integrating Bay Networks (BAY).
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