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Old 12-16-2003, 10:17 AM
jjgold jjgold is offline
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Default Tech Reports Tuesday

Tech stocks tracked the broad market higher at the open and then led shares lower on Monday. By the close, the Philadelphia Semiconductor Index (SOXX 482.29 -13.86) was off 2.8% with decliners outnumbering advancers 17:1. The broader Briefing.com Index closed 1.5% lower, with decliners leading advancers 2.5:1. Decliners fell 3.4% and advancers gained 2.6%.

Shares were initially buoyed by strong gains overseas following news of Saddam Hussein's capture by U.S. forces, and a strong December New York Empire State Index reading of 37.4 vs. consensus at 35.0. The reality is, neither data point has sufficient weight to alter the fundamentals for technology. Would continue to protect gains as opportunities permit.

After the close, Oracle (ORCL 12.70 -0.13) posted Q2 results modestly ahead of consensus expectations on improving demand across geographies and favorable foreign exchange. Management guided Q3 EPS essentially in-line and revenue modestly ahead of consensus. Please visit the Story Stock page on Tuesday for our assessment of Q2 results and investment summary
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Old 12-16-2003, 10:17 AM
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Computer Systems & Peripherals
EMC Corp to buy VMware for $635 mln (EMC) 12.84 -0.07: After the close, co announced that it has signed a definitive agreement to acquire privately-held VMware, a leader in Intel-based virtual computing software, in a cash transaction valued at about $635 mln.

IBM (IBM) 92.11 -0.60: The Wall Street Journal reported IBM has told its managers to plan on moving the work of as many as 4,730 programmers to India, China and elsewhere. IBM calls its plan "Global Sourcing." and it involves people in its Application Management Services group, a part of IBM's giant global-services operations, which comprise more than half IBM's 315,000 employees.

Lexar Media (LEXR) 16.54 +0.25: JP Morgan added Lexar Media (LEXR) to their Focus List, citing the co's "superb" fundamentals; firm believes the recent sell-off in the group (LEXR, SNDK, FLSH) appears to have been based on fears of over-supply and rapidly declining retail prices, yet firm views the industry as supply-constrained and believes retail prices are steadily declining in-line with 35-40% per MB annual die cost decline expectations; also, firm believes that we are still in the early stages of the development of the Flash memory product mkt, and notes that LEXR enjoys the benefits of preferential supply during periods of supply-constraint, and a competitive cost-structure during periods of over-supply. Firm's 6-month target is $23.

Western Digital (WDC) 10.40 -1.04: Before the open, guided Q2 EPS in line, raised revenues above consensus. Company sees Q2 EPS of $0.28-0.30, vs the Reuters Research consensus of $0.29, and raises revenue guidance by $30 mln to $790-810 mln, vs an R.R. estimate of $782.7 mln.

Networking
AT&T Wireless (AWE) 6.96 -0.17: Cut to Mkt Perform from Outperform at Raymond James. The downgrade of AT&T Wireless (AWE) is due to concerns about its competitive position given the recent disruption of its internal activation and customer care systems. In addition, firm believes AWE has the greatest exposure to losing customers from wireless local number portability and continues to have issues implementing it; also believes that Verizon Wireless (VZ) is pleased with its trials of CDMA EV-DO and looking to expand this service into additional markets. This would keep AWE in a difficult competitive position since its technology migration is still very much a work in process.

Internet
Ask Jeeves (ASKJ) 17.92 +0.08: ASKJ upped to Over Weight from Equal Weight at Pacific Growth. Firm says feedback from industry participants points to continued strength in the Paid Search market during Q4 and into 2004; also says Ask Jeeves (ASKJ) appears to be executing nicely and, in our opinion, is well-positioned with sizable Search traffic and compelling technology assets.

Check Point Sftwr (CHKP) 17.10 -0.25: After the close, Company announced it signed a definitive merger agreement to acquire privately held Zone Labs for $205 mln, approx $113 mln in cash and approx $92 mln in stock. The deal is expected to close in Q1 of 2004.

Digital River (DRIV) 22.46 -2.55: On Friday after the close, Digital River (DRIV) announced it will not renew its outsourcing contract with Major League Baseball, after it expires in Q1. Piper Jaffray believes MLB sought a partner willing to take inventory risk, which is outside of DRIV's core competency and strategic focus. While the contract loss is clearly not a positive for the stock, the firm notes that MLB's apparel and hard goods product is outside of DRIV's core software competency. The financial scope of the deal was small, at no more than 2%-3% of revenues. Although not buyers at current levels, the firm would be buyers on the weakness, as the firm expects the loss of MLB will likely be offset by its increased focus on its core software vertical.

DoubleClick (DCLK) 9.96 +0.34: CIBC Wrld Mkts upgraded Sector Underperform to SECTOR OUTPERFORM. Believes Motif's stronger value proposition to customer in rich media space should lead to significantly higher average pricing.

DoubleClick (DCLK) 9.96 +0.34: Piper Jaffray upgraded DoubleClick (DCLK) to Outperform from Market Perform and raised its target to $15 from $13 as the firm believes co will have a tail wind in 2004 that includes increased ad volume, higher prices driven primarily by Motif , the co's new rich media product, and the belief that Street EPS estimates are too low. The risk to the stock is reduced given that it trades at just about 2x cash value and that the estimates are conservative, reducing the possibility for the co to miss. The co also has a major share buy back program. The stock trades at 9x the firm's 2004 EBITDA estimate, 50% below the average of 18x for the firm's universe. The stock also trades at 26x '04 GAAP EPS, a 30% discount to the universe average. Note, CIBC also upgraded the stock (see InPlay 7:14 ET).

InterNAP (INAP) 1.98 -0.11: Under the agreement, Internap will provide Telefonica with intelligent routing connectivity in order to more effectively route business-critical data traffic in North America. Telefonica International Wholesale Services, global provider of international wholesale services within the Telefonica Group, will partner to deliver extensive connectivity services to Internap through Telefonica USA, which in turn will provide support to business-critical applications for another significant customer and Telefonica Group company.

Internet Capital (ICGE) 0.34 +0.01: Co receives notice of the continuation of its listing status on the Nasdaq SmallCap Market. The Nasdaq Listing Qualifications Panel has granted ICGE an exception to the bid price requirement through January 30, 2004, to allow for further developments in the SEC rulemaking process.

Loudeye (LOUD) 1.98 +0.48: Co and Microsoft announce they are working together to enable businesses to rapidly and cost-effectively deploy their own branded digital music services and stores. The two companies will promote the adoption of Loudeye's new digital music solutions, which are built on the Microsoft Windows Media 9 Series platform and which make it possible for other companies to create and launch their own digital music stores and services for a significantly reduced upfront financial investment. Initial customers of Loudeye digital music solutions using Windows Media 9 Series include AT&T Wireless and Gibson Audio.

Portal Software (PRSF) 6.17 +0.11: Kaufman Bros initiated coverage of Portal Software (PRSF) with a Buy rating and $9 target.. The company reported disappointing OctQ results due to execution and revenue timing issues associated with several project implementations. The co differentiates itself with aggressive direct sales coverage, third-generation software for convergent services, significant partnerships, and major customers worldwide. Portal bolstered its balance sheet in Sep through the completion of a stock offering. Co now has 91 mln in cash and virtually no debt. The price target is based on EV/sales of 2x FY06E revenueof $160 mln.

TIBCO Software (TIBX) 6.02 -0.10: Thomas Weisel upgraded Peer Perform to OUTPERFORM. Cites improved execution by sales force and faster than expected sales ramp into Financial Services vertical.

Yahoo! (YHOO) 42.25 -0.73: Yahoo! announced the launch of Yahoo! PayDirect International, which allows Yahoo! and Yahoo! en espanol users to send money to family and friends in 182 countries throughout the world. Recipients worldwide will not need a PayDirect account, Internet access or even a local bank account to obtain their funds.
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Old 12-16-2003, 10:17 AM
jjgold jjgold is offline
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Semiconductor
: SG Cowen upgraded TXN (28.34 -0.38), NSM (38.00 1.57), and CY (20.20 +0.21) to Strong Buy from Outperform based on their belief that these co's (as well as Strong Buy-rated IDTI (16.20 -0.50)) have the highest earnings sensitivity to strong industry growth, and that rising demand, increasing prices, and relatively fixed costs create a bullish "perfect storm" for investors.

Advanced Micro (AMD) 14.73 -0.54: American Technology Research believes it is likely that INTC will soon unveil a 64-bit x86 chip in Q1 or Q2 of 2004, which would be a huge endorsement of 64-bit computing; however, firm says it will take Intel close to one full year to build a support infrastructure of motherboards, chipsets, and graphics accelerators, leaving the 2004 playing field wide open for AMD; firm says this would materially boost AMD's ASPs and margins, and "pop" earnings such that AMD could earn better than $1.00, or possibly $2.00 in 2004 (firm's est is $1.20, consensus is $0.26), which could propel the stock to $25.

Ibis Tech (IBIS) 13.20 -2.20: Co announced that Q4 wafer sales are expected to be in the range of $1.0-$1.1 mln, and that wafer rev is being adversely impacted as the co's largest customer makes year-end inventory adjustments and prepares for the changing product mix demands for 2004. On the equipment side, co had expected to book orders for one to three i2000 implanters before the end of 2003, however, it now expects an order(s) for one to three i2000 implanters to be received in 1H04.

Microchip (MCHP) 31.81 -0.84: American Technology Research upgraded to Buy from Hold and raised their target to $40 from $28 based on their belief that MCHP is on track to achieve an all-time record bookings qtr in Dec; firm says strength is being driven by the memory and analog product lines, MCUs (80% revs) are benefiting from a strong mkt, and the newly announced DSC products are seeing good new design win traction.

Standard Micro (SMSC) 24.66 -2.59: Reported Q3 (Nov) earnings of $0.77 per diluted share, includes $0.68 from IP payment and aforementioned settlement of open tax audits, in line with the Reuters Research consensus of $0.77; revenues rose 79.1% year/year to $72.7 mln vs the $70.1 mln consensus. Co also guides Q4, sees EPS of $0.15-0.19, vs the R.R. consensus of $0.14, and revenues of $50-54 mln, vs an estimate of $51.4 mln; co also expects to exceed previous Y04 EPS guidance of $1.15-1.18, vs the R.R. consensus of $1.09.

Semi Equipment
There was no news of note in the Semi Equipment industry.

Software
Affiliated Computer (ACS) 51.90 -1.50: BB&T Capital downgraded Affiliated Computer (ACS) to Hold from Buy based on valuation as well as their belief that the co will see even more competition in its core business process outsourcing segment as more and more technology services vendors begin targeting this sector; also, political pressure is also building against the outsourcing of work, particularly in the govt sector.

BMC Software (BMC) 16.95 -0.05: Co announced that it has agreed to acquire the assets of Magic Solutions from Network Associates for apprx $47 mln in cash. Magic Solutions provides help desk software and related solutions targeted at small- to mid-sized organizations. The acquisition is expected to close within 60 days.,

Concord EFS (CE) 13.60 +0.10: D.A. Davidson believes approval by DoJ minimizes merger completion risk; according to firm, value of CE shares now tied directly to FDC shares. Firm raises price tgt to $18 from $11.

Convergys (CVG) 15.17 -0.03: After the close, co announced it has signed a seven-year agreement with Sprint to support the company's business and consumer wireless subscribers on CVG's billing platform. CVG expects this long-term contract with Sprint will be neutral to the co's previously discussed Y04 financial guidance.

First Data (FDC) 38.00 -1.30: First Data and Concord EFS (CE 13.50) announced a proposed agreement with the U.S. Department of Justice (DOJ), eight states and the District of Columbia on terms that will allow the companies to complete their proposed merger by the end of the first quarter 2004. The proposed agreement with the DOJ calls for First Data to divest its 64% ownership of the NYCE Corp... In connection with the DOJ settlement, the two companies also agreed to new financial terms. First Data will exchange 0.365 First Data common shares for every Concord common share. At Friday's, closing price of FDC stock, the transaction was valued at $14.34 for each common share of Concord.

Oracle (ORCL) 12.70 -0.13: After the close, reported Q2 (Nov) earnings of $0.12 per share, $0.01 better than the Reuters Research consensus of $0.11; revenues rose 8.2% year/year to $2.498 bln vs the $2.41 bln consensus. Co reports that new software license sales were up 13% to $849 mln.

PeopleSoft (PSFT) 20.50 -0.38: Company will begin shipping seven pre-integrations to enable its PeopleSoft Enterprise (formerly known as PeopleSoft 8) customers to leverage solutions from EnterpriseOne (formerly known as J.D. Edwards 5), and PeopleSoft EnterpriseOne customers to leverage solutions from PeopleSoft Enterprise. PSFT also announces launch of four new Enterprise Performance Management solutions for PeopleSoft EnterpriseOne and PeopleSoft World. These milestones are ahead of product roadmap schedule company announced on Sept 4.

Roxio (ROXI) 4.67 +0.18: Before the open, company increased its Q3 guidance for software revenues to approx $14.5 mln, compared to prior forecast of $14.0 mln, due to strong performance of category leading products, Easy CD & DVD Creator 6 for Windows, and Toast for the Mac platform; co also expects revenue for its online music biz to be approx $3.5 mln, driven by the Oct. launch of Napster 2.0. Adams Harkness maintains their Reduce rating on ROXI after the co lowered guidance for Napster's Dec qtr rev contribution to $3.5 mln from $5.0 mln, and lowered their overall rev guidance by $1 mln. Firm remains skeptical on Napster, saying low gross margins, intense competition, and high operating costs are an ugly combination.

Sybase (SY) 19.58 -0.80: Selected by T. Rowe Price for data mgmt services.

US Dataworks (UDW) 3.34 -0.01: Co announced that one of its customers, a leading financial institution, has significantly increased its processing production for account receivables conversion (ARC) by using US Dataworks' ARC solutions, reaching a new daily high of over 300,000 transactions. More importantly, this customer is sustaining this high level of production prospectively with an intention to increase its volume over time.

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Old 12-16-2003, 10:18 AM
jjgold jjgold is offline
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Telecom Equip
: Corvis (CORV1.60). Needham reiterated its Buy rating and $3 target on Corvis (CORV). The co is emerging from a turnaround, including the purchase of Broadwing from Cincinnati Bell and employment of a management team well versed in the telecom services market. The firm says Corvis seized the opportunity to "steal" Broadwing for a fraction of revenues out of a distressed sale in 2003. At an EV / 2004E revenues of 0.9x and 2x cash with virtually no debt, Needham sees significant upside to Corvis heading into a cyclical upturn in 2004 and a more rational industry structure.
InterDigital (IDCC16.78 +0.13). High probability co will deliver on license addition promise -- First Albany (OPENX) 19.86 +0.25: First Albany comments that on its last conference call, InterDigital (IDCC) management stated its belief that it would add one or more new licensees by the end of the year. First Albany believes there is a fairly high probability that the company will deliver on this promise. Firm is fairly certain that UTStarcom (UTSI) will not be one of the licensees, based on firm's conversations with UTStarcom management. However, First Albany believes that InterDigital shares will likely trade up on the announcement of one or more licensees. The strength and sustainability of the move will, of course, will be determined by the quality of the licensee(s). Firm maintains Neutral rating.


Net2Phone (NTOP) 5.81 +0.16: Barron's Technology Trader column highlights VoIP sector. Article says Sonus (SONS 8.10) and 8x8 (EGHT 4.69) trade at high valuations while a better value is Net2Phone. After raising about $63 mln in a secondary stock offering last month, the co has about $2/share in cash. The co is seeking out smaller cable-TV suppliers and offering to be their outsourced VoIP service. The upside for investors depends on how many cable firms Net2Phone can recruit over the next couple of years. Platinum subscribers see Briefing.com's recent Brief on VoIP.

Westell Tech (WSTL) 6.00 -0.19: In an 8-K filing with the SEC, co maintained previously stated Q3 guidance of $0.07 in EPS and revs of $58-$59 mln -- Reuters Research consensus $0.08 and $59.50 mln. The comments were associated with disclosure by co that it has terminated an existing long distance agreement that will result in a net one-time termination penalty of $750,000, which will be charged to expense in the DecQ. Co anticipates recouping the termination penalty with the lower long distance costs over the first five-month period of a new long distance agreement.

Telecom Services
AT&T (T) 18.98: CSFB downgraded T to Neutral from Outperform, citing mgmt's comments on Dec 11 that indicated Business revs will decline -6% in FY03 (vs prior "worse than the -4.2% reported in the first 9 months of 2003"), which was worse than firm's prior -5% est and reflected continuing intense pricing pressure. AT&T (T 18.98).
Bear Stearns downgraded AT&T (T) to Peer Perform from Outperform; firm says mgmt indicated on Friday that the pricing environment has deteriorated precipitously in the last qtr, driven by vendors aside from MCI (such as Sprint and SBC), dashing hopes that MCI's emergence would stabilize the pricing environment; also, an economy-related recovery has yet to materialize.


AT&T Wireless (AWE) 6.96 -0.17: Downgraded to Mkt Perform from Outperform at Raymond James. The downgrade of AT&T Wireless (AWE) is due to concerns about its competitive position given the recent disruption of its internal activation and customer care systems. In addition, firm believes AWE has the greatest exposure to losing customers from wireless local number portability and continues to have issues implementing it; also believes that Verizon Wireless (VZ) is pleased with its trials of CDMA EV-DO and looking to expand this service into additional markets. This would keep AWE in a difficult competitive position since its technology migration is still very much a work in process.

Sprint FON (FON) 15.00 +0.07: After the close. co indicated it sees Y03 (Dec) EPS in the range of $1.43-1.45, Reuters estimate is $1.44.

Sprint PCS (PCS) 4.57 -0.10: After the close, co guided at the low end of Y03 estimates. Expects PCS group to be at the low end of previous Y03 EPS guidance of a loss $0.43-0.48, Reuter estimate is a loss of $0.46.
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