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Old 12-05-2003, 09:59 AM
jjgold jjgold is offline
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Default Tech Report Friday

Tech shares began and traded through the morning session flat, headed south at 12:30pm ET, and reversed course at 2:30pm ET to recover half of their losses for the day to finally close the session down a modest 0.4%. Decliners led advancers 1.5:1 with decliners dropping 2.5% and advancers rising 2.6%.

Thursday's trading reflected the quest for certainty that investors have been seeking for the better part of two months. Optimistic on expansion, concerned with valuation, and unsure of the magnitude and duration of growth, investors have been wrestling with whether to hold or sell tech. In Wednesday's General Commentary, we noted that this process of devaluing/revaluing shares is taking place across tech. At least for Thursday's session, the consensus was in favor of discounting the latest round of industry forecasts, company earnings guidance and economic data as simply confirmatory evidence of expansion but not the higher growth needed to propel shares higher. Despite positive guidance and bullish comments on the wireless market from Qualcomm (QCOM 49.10 +4.63) and National Semiconductor (NSM 41.80 -1.70), wireless component and handset manufacturers lost ground. QCOM closed higher, but communications integrated circuit shares including RF Microdevices (RFMD 10.72 -0.08), NSM and Texas Instruments (TXN 29.14 -0.36) all lost ground.

After the close, Intel (INTC 33.54 +0.20) narrowed Q4 revenue guidance from $8.1B-8.7B to $8.5-8.7B and raised gross margin estimates from 60% +/- a few points to 62% +/- one point. Seeing general strength across all geographies and businesses. The WCCG (Wireless Communications and Computing Group) business (5.7% of revenue) is performing as expected but INTC is taking a $600MM goodwill impairment charge against the WCCG business due to lower than expected long-term returns for the flash memory and base-band chipsets business. Reduced expectations for the WCCG business and impairment charge notwithstanding, INTC's guidance provides evidence, as noted in the Q3 review, that the company's investments in process technologies and product development positions INTC to capture share across product and geographic markets, and will lead to substantial yield enhancements and efficiencies that will reflect on the gross and operating margin line. We would accumulate on weakness.

We remain modestly bullish on tech over the long-term but concerns regarding valuation will continue to limit advances in the broader market near-term. This market remains highly selective and we would protect gains as opportunities permit
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Old 12-05-2003, 09:59 AM
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Computer Systems & Peripherals
Sonic Solutions (SNIC) 17.60 -0.60: Co announced that both Sonic MyDVD 5 and Sonic PrimeTime applications for DVD creation are now shipping in Japan as integrated components of Fujitsu Limited's FMV-DESKPOWER C90EW/C Microsoft Windows XP Media Center Edition PC.

Western Digital (WDC) 11.40 +0.01: Co states in an 8-K filing that, in a meetings with analysts on Dec 4 and 5 at the CSFB 2003 Annual Technology Conference, it plans to provide an update on certain current conditions in the hard drive industry. This update will be consistent with the presentation which will be given at the conference on Dec 5. "Specifically, the company will indicate that for both the industry and for the company, overall demand across all geographies and channels is at a level expected in a seasonally strong December quarter. In addition, OEM demand has met expectations and distribution sell-through has improved from slower rates in October. Pricing has been consistent with a balanced supply and demand condition and the industry has not experienced allocation at this point in the quarter. The company will also indicate that December sell-through levels, demand and pricing will determine the outcome of the quarter, and typical seasonal improvement in sell-through is anticipated."

Networking
Cisco Systems (CSCO) 23.98 +0.68: Merrill Lynch upgraded Cisco (CSCO) to Buy from Neutral and raised their FY04-05 ests above consensus based on their belief that demand within the US enterprise mkt will recover in 2004 and that mgmt will keep operating expenses relatively flat as revs grow; raises FY04 est to $0.73 from $0.70 (consensus $0.70) and FY05 to $0.85 from $0.74 (consensus $0.80). Target is $29.

Qualcomm (QCOM) 49.10 +4.63: Co. raised Q1 (Dec) EPS guidance to $0.47-0.48, excluding an $0.11 charge and the QSI segment, (Previous guidance was $0.37-0.40, Reuters Research estimate is $0.38). Co states, "We are seeing stronger growth than anticipated in all CDMA markets asoperators continue to deploy and expand 3G networks, providing high-qualityvoice and advanced data services over a broad range of phones. Increasedsales of mid- and high-tier phones featuring high-resolution color screens,mega-pixel cameras and position location resulted in a slight increase of theaverage selling price offsetting increased sales of low-priced, entry-levelphones." as the reason for the improved outlook.

Internet
Bluefly (BFLY) 4.09 +0.29: Reported 16% increase in Nov sales. "November was a good month for Bluefly and, I believe, even better than is initially apparent."

Yahoo! (YHOO) 43.13 +0.63: Estimates raised above consensus at Soundview. Soundview maintained their Outperform rating and $48 target and Yahoo (YHOO), and raised their Q4 and 2004 EPS ests above consensus; firm says strong demand for e-commerce, healthcare, and financial keywords, as well as a seasonal uptick in search query volume, are driving search rev growth; also, core advertising is pacing well in Q4, with firming prices for both low-end remnant inventory and high-end banners and sponsorships. Raises Q4 est to $0.11 from $0.10 (consensus $0.10) and raises 2004 est to $0.59 from $0.55 (consensus $0.53).
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Old 12-05-2003, 10:00 AM
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Semiconductor
Integrated Circuit (ICST) 27.04 -1.59: Hearing that Legg Mason out with an intraday upgrade (ICST) 27.80 -1.83.

Integrated Device (IDTI) 18.39 -0.12: Co expects its rev to be at the high end of its previously forecasted range of a 1-5% sequential increase from the prior qtr's revs of $80.8 mln.

Integrated Silicon (ISSI) 16.69 -0.60: After the close, filed for 6 mln share follow-on offering. All of the shares are being offered by the Company. Deutsche Bank and SG Cowen will serve as joint book-running managers for the offering, with ThinkEquity Partners serving as co-managing underwriter.

Intel (INTC) 33.54 +0.20: After the close, co narrowed Q4 rev range to $8.5-8.7 bln. Reuters consensus is $8.55 bln, previous guidance called for revenues of $8.1-8.7 bln. Company sees Y03 R&D spending of $4.4 bln, previous expectation was $4.3 bln. Expenses are expected to be approximately $2.3 bln, at high end of previous expectation of $2.2-2.3 bln. Company also announces it will take $600 mln, or $0.06 per share, Q4 goodwill impairment charge related to its Wireless Communications and Computing Group.

Marvell (MRVL) 38.50 +0.69: Merrill Lynch upgraded Neutral to BUY. Target $48. Believes concerns about MRVL's rev growth are overblown and that the co's intermediate-term rev growth drivers remain intact.

National Semi (NSM) 41.80 -1.70: Reported Q2 (Nov) pro forma earnings of $0.36 per share, $0.04 better than the Reuters Research consensus of $0.32; revenues rose 12.1% year/year to $473.5 mln vs the $463.6 mln consensus. Gross margin improved to 50.1%, up from 47.2% in Q1. Co expects Q3 revs to grow 3-5% sequentially (about $487.7-$497.2 mln, vs consensus of $461.0 mln). Consistent with this growth, gross margins are expected to improve slightly.

Simple Tech (STEC) 5.75 -0.07: After the close, announced co settled lawsuit with Lexar Media. The two companies have agreed to a mutual dismissal of the lawsuit currently pending in Federal District Court of Central District of California. Additionally, SimpleTech has taken a royalty-bearing license under Lexar's (LEXR) patents for its past and future sales of Memory Stick products. "We are pleased to have settled this litigation in a fair and equitable manner," said Manouch Moshayedi, chairman and chief executive officer at SimpleTech.

Transmeta (TMTA) 4.09 +0.74: Co announced that its new Efficeon processor will be used in a new enterprise computing model from HP. This new computing model consolidates desktop computing and networked resources into manageable, highly secure datacenters.

Semi Equipment
Advanced Energy (AEIS) 26.02 -0.39: After the close, co announced that Dennis Faerber, exec VP and C.O.O., has left the company. The co's product and technology, manufacturing, global customer operations and quality groups will now report to Doug Schatz, chairman and CEO. The co will not seek a replacement for the position of C.O.O.

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Old 12-05-2003, 10:00 AM
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Software
American Mngmt (AMSY) 15.20 +0.25: Co announced a new organizational alignment and detailed specific areas of market focus for 2004 at its annual conference for analysts and investors. Beginning in 2004, the Company will organize and report full profit and loss statements centered on two lines of business -- Public Sector and a newly consolidated Commercial Sector. At the meeting, the Company reaffirmed its financial guidance for Q4.

Peerless Systems (PRLS) 2.79 -0.02: After the close, co reported a Q3 loss of $0.16, $0.02 better than Reuters Research consensus (one analyst on coverage); revs fell 25% to $5.8 mln vs $6.2 mln consensus. Co. also states it is lowering its Q4 (Jan) revenue to $8 mln (previous guidance was $10 mln) Reuters estimate is $10 mln.

Telecom Equip
Corning (GLW) 10.85 -0.19: Co announced that it will take $70-80 mln charge related to consolidate the manufacturing operations of its high purity fused silica and fluoride crystal materials production into its Canton, N.Y., facility, and its fluoride crystals components finishing production into Corning Tropel's operation in Fairport, N.Y. These actions will result in the closure of Corning facilities in Charleston, S.C., and North Brookfield, Mass. Co estimates the charges for these actions to be in the range of $70-80 mln pretax with approx 5% of the charge being cash.

Juniper Networks (JNPR) 18.14 +0.17: Co and NEC Corp signed a strategic alliance agreement expanding upon an existing reseller relationship and provides for original equipment manufacture (OEM) in the future.

Motorola (MOT) 13.37 -0.30: Co announced that while its new integrated-camera handsets are winning rave reviews with industry experts, mobile operators and consumers, supply constraints for integrated-camera components are posing a challenge to delivery efforts. The Motorola V300 and V500 began shipping earlier in the quarter and are available today, and the V600 will ship imminently," Lynch said. "Unit volumes, however, are lower than our customers are asking for due to supply constraints for the integrated-camera components... The supply constraint for integrated-camera components is an industry- wide problem... Motorola is feeling a larger impact because of the extremely limited supply of the smaller camera technology that we use for our handsets, which enables a compelling clamshell form factor and stylish design."

Qualcomm (QCOM) 49.10 +4.63: Co. raised Q1 (Dec) EPS guidance to $0.47-0.48, excluding an $0.11 charge and the QSI segment, (Previous guidance was $0.37-0.40, Reuters Research estimate is $0.38). Co states, "We are seeing stronger growth than anticipated in all CDMA markets asoperators continue to deploy and expand 3G networks, providing high-qualityvoice and advanced data services over a broad range of phones. Increasedsales of mid- and high-tier phones featuring high-resolution color screens,mega-pixel cameras and position location resulted in a slight increase of theaverage selling price offsetting increased sales of low-priced, entry-levelphones." as the reason for the improved outlook. JP Morgan upgrades Underweight to OVERWEIGHT. Believes QCOM's chip share appears to have much stronger legs than earlier anticipated.

Tut Systems (TUTS) 5.61 +0.76: Merriman Curhan Ford initiated coverage with a Buy rating and $8 target; firm believes the co Systems is a compelling way to participate in the digital video over xDSL opportunity, and notes that the co has industry-leading technology
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Old 12-05-2003, 10:00 AM
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Telecom Services
AT&T Wireless (AWE) 7.23 -0.02: The Wall Street Journal's "Heard on the Street" column discusses AWE in light of reports from retailers, Wall Street analysts, consumer groups and officials at other wireless firms, that suggests the co has encountered the most problems associated with the portability issue. According to the article, co officials have acknowledged that its difficulties have been worse than the industry average. A spokesman said the company so far is experiencing a portability "error rate" of "a little above 60%," compared with what he says is an industrywide average of about 50%. However, AWE spokesman Mark Siegel states, "the other thing that is very noticeable is that we see relatively light interest in" number portability.

Nextel Partners (NXTP) 11.83 -0.14: Lehman Brothers initiated OVERWEIGHT. Target $16. Believes co has high-growth characteristics of an emerging co and impressive sub metrics and discipline of big brother Nextel.

Qwest (Q) 3.56 -0.01: The Wall Street Journal reported The Federal Communications Commission has decided to allow Q to provide long-distance service to its local customers in Arizona. The approval means that the regional Bell companies can now provide long-distance to all their
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Old 12-05-2003, 12:05 PM
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08:57 ET: [BRIEFING.COM] S&P futures vs fair value: -5.8. Nasdaq futures vs fair value: -18.5. Expectations remain intact for a negative start for the indices as the futures indications continue to trade lower... The leaner than expected +57K gain in November nonfarm payrolls, along with the net 15K downward revision to the past two months, has dampened enthusiasm... Meanwhile, the treasury market has gotten a boost from the employment report, with the 10-year note up 25 ticks and its yield dropping to 4.27%.

08:39 ET: [BRIEFING.COM] S&P futures vs fair value: -5.5. Nasdaq futures vs fair value: -14.5. Futures trade edges lower off the November employment report... Although the unemployment rate dipped to 5.9% (consensus of 6.0%), job growth was somewhat slower than expected - with nonfarm payrolls coming in at +57K versus the consensus of +150K... Traders have used the headline as a reason to book further profits, along with INTC's Q4 (Dec) guidance that bracketed consensus estimates... Cash market now set for a noticeably lower open.

08:00 ET: [BRIEFING.COM] S&P futures vs fair value: -2.2. Nasdaq futures vs fair value: -10.0. Shaping up to be a lower open for the cash market... Disappointment that INTC did not show strong upside in its mid-quarter update last night, along with some nervousness ahead of the November employment report - due out at 8:30 ET - has curbed buying interest in the futures market.

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