Tech report Wednesday

[jjgold]

No change. Though the indices edged lower in orderly trading, techs continued to exhibit impressive relative strength. In light of recent gains, most on street expecting a more sizable correction. Fact that we haven't seen much of a pullback, lends credence to view that sidelined investors using any dips to (re)enter long side for fear of falling too far behind.

This shift in sentiment is what's largely behind the sector's resilience. Investors no longer viewing tech rallies as selling opportunity. Why? Maybe it's because all the sellers were washed out over the past few years. Maybe it's because earnings in Q1 were up about 12% yoy. Or maybe, its because investors are expecting end user demand to accelerate in the second half of the year. Whatever the reasons (we suspect it is at least some combination of the above), there's no denying that sentiment surrounding the sector is much improved.

Don't believe us. Just look at the list of stocks making new 52-wk highs. You will see a growing number of tech names on that list. That's a clear sign of improved momentum and bullish sentiment.

As we alluded to on this page yesterday, many large investors entered the year underweighted in tech. Most were slow to warm to the sector given all the false starts over the past few years. But now that the sector has held up in the face of bad news; now that earnings are trending higher; and now that technicals look better than the have in years, the so-called smart money is so afraid of looking stupid that it's rushing out to buy tech on any dip - even if there's no tangible evidence of a rebound in demand and even if the earnings outlook for the second half remains murky.

While it's true that the sector and the market are overextended, as long as big money players are playing catch-up, it might not matter. Against such a backdrop pullbacks will be shallow and short-lived. So if you're waiting to get your favorite tech stock on a pullback, don't wait too long.

 

[jjgold]

Computer Systems & Peripherals
Drive stocks run away from fundamentals -- Hoefer & Arnett : A Hoefer & Arnett analyst cites concerns over the recent run up in drive stocks. In his morning comments, the analyst suggests recent price increases of WDC, MXO and STX can be attributed to technicals and favorable press coverage as opposed to fundamentals. In addition, specific concerns mentioned are inventories and the potential SARS effect on Asian inventory levels. In the interim, the firm would not be buying drive stocks beyond their current levels but expects higher prices by the end of the year.

EMC Corp (EMC) 10.10 +0.16: Joins growing list of tech companies setting new 52-wk high..

IBM (IBM) 89.98 +0.98: Sets new 52-wk high.

Network Appliance (NTAP) 16.74 +0.36: After close, reports Q4 (Apr) earnings of $0.07 per share, in line with the Reuters Research consensus of $0.07; revenues rose 17.9% year/year to $241.6 mln vs the $238.8 mln consensus. Announces $150 mln buyback.

Tech Data (TECD) 24.35 -0.14: Lehman reduces its TECD estimates below consensus. April EPS goes to $0.37 (-0.03) vs $0.40 consensus, FY04 EPS goes to $1.65 (-$0.17) vs $1.81 consensus. Firm believes seeing incremental weakness in U.S. demand starting in March and continuing into April.

Networking
Cisco Systems (CSCO) 16.47 -0.20: Bernstein cuts to Underperform... Firm believes it is too early to price in a rebound, and that consensus projections for longer-term growth and profitability are unattainable. Puts discounted cash flow fair value around $12.

CNT (CMNT) 5.98 -0.67: First Albany downgrades to Neutral from Buy based on lower growth rate assumptions, uncertainty over the strength of Ultranet WAN products, and their concerns about the competitive landscape in the Fibre Channel-Director mkt, where MCDT and BRCD are entrenched and CSCO is entering the mkt; cuts target to $6.25 from $9.30.

Internet
Digital River (DRIV) 18.90 +1.04: Stock sets new 52-wk high... Advance leaves DRIV trading at 31.7x projected 2003 earnings. EPS projected to expand 23% in 2004 to $0.74 (p/e 25.5).

Register.com (RCOM) 6.00 +1.00: Reports Q1 (Mar) earnings of $0.05 per share, $0.04 better than the Reuters Research consensus of $0.01; revenues fell 0.8% year/year to $27.1 mln vs the $26.8 mln consensus... For more, see Briefing.com's Story Stocks page.

Symantec (SYMC) 46.06 -0.06: Despite recent concerns based on erratic, short-term NPD data, Thomas Weisel believes SYMC guidance for 20% increase in consumer revs is achievable even on flat unit shipments.

Volume Breakout -- Ebookers.com (EBKR) : Shares of European Internet travel portal posting a 9% gain today on very strong volume. Issue has been on the move since a Brean Murray upgrade to Strong Buy on April 7 (see In Play archive). Earlier this month, EBKR became the first European online travel agency to reach profitability. Surprise profit led Brean Murray to raise its 2003 EPADR est to $0.10 from $0.00 and 2004 to $0.80 from $0.70. Firm also increased its price target to $15 from $13, noting that stock was trading at a "compelling" 3.1x revenues vs 9.3x for EXPE (which is being acquired by USAI).

Yahoo! (YHOO) 27.22 +1.05: Races to new 52-wk high.

Semiconductor
Conexant (CNXT) 2.75 +0.19: Announces that it plans to complete the spin-off to shareholders of Mindspeed Technologies, its Internet infrastructure biz, ahead of schedule on June 27; previously, CNXT had said only that it would complete the spin-off sometime this summer.

Intel (INTC) 19.82 -0.17: UBS ups price target to $24 from $22, reiterates Buy... Separately, the Wall Street Journal reports Intel has discovered a "glitch" in its Itanium 2 microprocessor. The problem causes computers to crash under certain circumstances and effects only some of its chips manufactured since its introduction last July.

LSI Logic (LSI) 5.58 -0.13: Prices $350 mln convertible offering.

Marvell (MRVL) 27.30 -0.10: CIBC fears that any positive news regarding the outlook may be viewed as "expected," and more important, "priced in." Firm would wait until after the earnings report before getting more aggressive.

Merrill downgrades Semis: ISIL, MXIM, NVDA, SMTC, ATYT : ISIL, MXIM, NVDA, SMTC, ATYT (OPENX) : Merrill Lynch downgrades Semiconductor names ISIL, MXIM, NVDA, SMTC and ATYT to Neutral from Buy. Firm does not think that business conditions and valuation merit continued Buy ratings. According to firm, the disconnect between what it is hearing from semi companies and their customers continues. Firm notes that it does not think the risk of a major, multi-quarter selloff exists.

Semi Equipment
Applied Materials (AMAT) 15.54 -0.18: After close, reports Q2 (Apr) earnings of $0.03 per share, ex items, $0.01 better than the Reuters Research consensus of $0.02; revenues fell 4.3% year/year to $1.11 bln vs the $1.10 bln consensus. $0.03 ongoing EPS actual excludes charges taken as part of reallignment plan.

LTX Corp (LTXX) 7.55 +0.22: Reports Q3 (Apr) loss of $0.22 per share, ex items, $0.02 better than the Reuters Research consensus of ($0.24); revenues rose 2.7% year/year to $28.8 mln vs the $28.5 mln consensus. Company sees Q4 (Jul) earnings to be a loss in the range of ($0.33) to ($0.36), this does not exclude any one-time charges, and is not comparable to the Reuters Research consensus. Company sees Q4 (Jul) revenues in the range of $30-33 mln vs. the Reuters Research consensus of $32 mln.

Software
Cognizant Tech (CTSH) 18.43 +0.27: Based on feedback, SG Cowen expects Q2 results to send a strong message to Wall Street regarding the sustainability of gross and operating margin.

Computer Assoc (CA) 17.59 +0.29: SG Cowen calls CA best value play in group. Firm finds valuation compelling at 10x free cash flow.

Computer Sciences (CSC) 34.21 +1.32: After close, reports Q4 (Mar) earnings of $0.95 per share, excluding a $0.02 charge related to acquisition of DynCorp, this appears to be comparable actual, as company says "Earnings per share (diluted) were 1 cent over consensus estimates". Reuters Research and First Call consensus are both $0.94. Revenues rose 1.4% year/year to $3.08 bln vs the $3.08 bln consensus. Company sees Q1 EPS of $0.50-0.52 vs R.R. consensus of $0.52, for Y04 sees $2.78-2.88, vs consensus estimate $2.82

Telecom Equip
Avanex (AVNX) 2.93 +1.74: Raymond James ups to Market perform based on the announced acquisition of Alcatel and Corning's optical components biz. Firm views transaction favorably, given the product and revenue contribution combined with the cash cushion being provided. (Stock was highlighted May 2 by Briefing.com as a Volume Breakout; price at the time was $1.00).

Interdigital Comm (IDCC) 27.14 +2.60: Reports Q1 (Mar) earnings of $0.45 per share, which includes $10.6 mln in income from settlement of Sony litigation, and doesn't appear comparable to analysts' estimates; revenues rose 78.5% year/year to $37.3 mln.

Sycamore (SCMR) 3.90 +0.18: After close, reports Q3 (Apr) loss of $0.05 per share, in line with the Reuters Research consensus of ($0.05); revenues fell 22.1% year/year to $10.6 mln vs the $9.6 mln consensus.

UTStarcom (UTSI) 25.07 +1.52: Issue cleared its former one-yr high of $24.07 set May 15, 2002. Short-interest 13%.

Telecom Services
Nextel (NXTL) 13.84 -0.10: Bear Stearns starts at Peer Perform... Sees NXTL's fair value at $16 with a projected trading range from $11 to $16. Advises investors to hold off for a better entry point in coming months.

West Corp (WSTC) 25.63 +2.90: Lehman ups to Overweight from Equal Weight following closing of the acquisition of InterCall. Firm expects deal to be accretive to WSTC earnings, leading Lehman to raise 2003 est to $1.25 from $1.13 and 2004 to $1.75 from $1.35. Price target goes to $35 from $30