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Old 12-17-2003, 10:04 AM
jjgold jjgold is offline
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Default Tech Report Wednesday

Tech stocks, for the second day, tracked the broad market higher at the open and then led shares lower. Shares were initially lifted by favorable economic data. First the November CPI came in at -0.2 with Core CPI down 0.1%, easing concerns over inflation. Second, November Industrial Production rose a stronger than expected 0.9%, with capacity utilization coming in at 75.7%, suggesting manufacturing is strong but not strong enough to drive prices higher. Finally, November Housing Starts rose 4.5% Y/Y while Building Permits dropped 5.4%, suggesting construction remains relatively strong and we are unlikely to see higher materials prices near-term.

Despite the positive economic data, tech shares sold off as investors continued to reassess risk/reward for tech. While the broad markets ended Tuesday's trading higher, the Philadelphia Semiconductor Index (SOXX 479.96 -2.33) eased 0.5%. Decliners outnumbered advancers 1.6:1 with decliners dropping 1.5% and advancers adding 1.2%. The Briefing.com Tech Index gave up 0.6%. Decliners exceeded advancers 1.3:1 with decliners falling 2.9% and advancers gaining 2.3%.

As we have noted on the General Commentary page, there is a bifurcation taking place among tech, between the richly valued and the less richly valued names. The trading action over the past few sessions confirms this idea of a rotation from higher multiple to lower multiple names (based on price/sales-to-growth multiples and the magnitude of the percent change for advancers vs. decliners). We think economic data will continue to support a modest upward bias in the equity markets but, because of higher valuations, the pressure on tech is likely to persist for some time. Near-term, we would continue to protect gains as opportunities arise (sell into strength). Long-term, we remain modestly bullish on tech given strong economic fundamentals, broadening global recovery/expansion, favorable secular trends and accommodative Fed policy. Visit the Story Stock page for the latest thinking on secular trends driving opportunities within tech.--
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Old 12-17-2003, 10:04 AM
jjgold jjgold is offline
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Computer Systems & Peripherals
: SanDisk (SNDK 55.25 -5.61). Hearing that weakness in SanDisk is due to EBN News report that flash memory-based data storage is drawing a crowd of new entrants that could see shortages abate by the middle of next year. Three leading chipmakers are jumping into the NAND flash game: Hynix Semiconductor Inc. and STMicroelectronics N.V., which have formed a joint venture to produce the chips; and Micron Technology Inc., which taped out a 2Gbit NAND device this month. Other flash makers "Intel, Silicon Storage Technology (SST), and Sharp" are eschewing NAND while developing versions of their NOR-based code storage products that will execute data storage functions. Jim Handy, nonvolatile-memory analyst at Semico Research Corp. in Los Gatos, Calif., said if every flash data storage supplier ramps production as scheduled, shortages could evaporate in the second half of 2004 and the market could head into oversupply.... (Briefing.com Note: this story is probably also contributing to the weakness in Lexar Media (LEXR 15.49 -1.05).
Western Digital (WDC10.70 +0.30). RW Baird initiated coverage of Western Digital with an Outperform and $15 target; firm believes that WDC is one of the better-positioned co's in the HDD industry given its opportunities with mobile, enterprise SATA, gaming, PVR/DVR, potential cost savings from the Read-Rite acquisition, reasonable valuation, and a more rational industry.


Adaptec (ADPT) 8.36 -0.36: Proposed $150 mln Convertible Senior Subordinated Notes offering. Adaptec intends to use a portion of the net proceeds of the intended offering to repurchase some of its outstanding 3% Convertible Subordinated Notes due 2007.

F5 Networks (FFIV) 24.04 -0.33: Co and IBM signed patent cross-icensing agreement. Under the terms of the agreement, F5 gains access to IBM's patents relating to Application Traffic Management and IBM gains access to F5's patent portfolio. "IBM's interest in licensing our patent portfolio is a strong validation of the value F5's patents hold within the industry," comments F5' Networks' CEO. Specific terms of the cross-licensing agreement are confidential.

Networking
Extreme Networks (EXTR) 6.35 -1.84: Before the open, warned for Q2. Company sees Q4 loss of $0.02-0.06 vs Reuters consenus of a $0.02 profit on revenues of $80-84 mln vs consensus of $92 mln. EXTR cites product constraints for lower than expected results
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Old 12-17-2003, 10:04 AM
jjgold jjgold is offline
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Semiconductor
Advanced Micro processor (AMD) 14.36 -0.37: Company announced Fujitsu Siemens Computers' CELSIUS V810 high-end workstation will feature the AMD Opteron processor 200 Series. Fujitsu exec says "The architectural benefits of the AMD Opteron processor and the ability to run 32-bit and 64-bit applications in parallel will enable our customers to develop completely new products, reduce time to market and development costs."

California Micro (CAMD) 7.92 -0.03: After the close, guided DecQ above consensus. Co sees Q3 (Dec) revenue $16.2-$17.0 mln and EPS of $ $0.06-$0.09 vs Reuters Research consensus of $15.9 mln and $0.04, respectively. Bookings are expected to be sequentially higher than the prior quarter's $15.4 mln, which was the highest level the company had achieved in three years.

LSI Logic (LSI) 8.37 -0.38: RapidChip may not be proceeding as anticipated - BofA (LSI) 8.70 -0.05: Banc of America says their channel checks suggest a significant internal reorganization recently occurred at LSI; firm says EVP Rick Marz, formerly in charge of the co's ASIC and RapidChip efforts, has been replaced by Joe Zelayeta (formerly EVP of WW Operations), and they believe this reorganization is especially significant, as it suggests that the co's efforts at rolling out/achieving traction with its key RapidChip product family is likely not proceeding as anticipated. Maintained Sell rating and $6 target.
Soundview reiterated their Outperform and $14 target on LSI following Banc of America's negative note on the co's reorganization (9:32). Soundview views the co's mgmt changes as unambiguously positive, saying RapidChip is seeing better adoption in the mkt, which in turn required the reorganization. In addition, firm cites: 1) LSI's reorganization includes changes that parse out the Storage Systems biz to act more independently, and position RapidChip Platform ASICs for high volume production, 2) Rick Marz is now EVP of Worldwide Marketing, which is a more visible role for Marz and is likely a reward for his success, 3) Joe Zelayeta replaces Marz as EVP of ASIC Technology and Methodology, and his operational experience will be ideal for taking RapidChip to volume production, and 4) the Systems Storage biz included changes that incorporate more separation from LSI's semi biz.


PC-TEL (PCTI) 8.44 -0.12: PCTI announced that it has settled a patent infringement lawsuit with BRCM, a leading provider of silicon solutions that enable broadband communications. The settled lawsuit pertains to "soft modems," a technology pioneered by PCTEL in the 1990s, and other voice band modem technology.

Semi Equipment
Taiwan Semiconductor Manufacturing (TSM) 9.80 -0.16: Needham initiated Taiwan Semi (TSM) with a Strong Buy and $13 target, based on a 25x p/e multiple of $0.50. Among the stocks in its universe, the firm considers the stock the most favorable way to play the trends affecting the semiconductor industry in 2004: 1) an industry-wide upturn in semiconductor demand, 2) limited availability of advanced capacity, which should drive pricing leverage, 3) increased capital efficiency driven by the shift to 300mm substrates and 4) continued growth in the trend to outsource semiconductor manufacturing. With the largest base of dedicated manufacturing capacity, an established reputation for delivering quality wafers, and the most efficient use of capital investments in the foundry industry, the firm believes the co is poised to deliver superior profitability and revenue growth in 2004
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Old 12-17-2003, 10:05 AM
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Software
Amdocs (DOX) 22.00 -3.27: Before the open, company reaffirmed Q104 EPS guidance of $0.24 (excluding acquisition-related costs and tax effects), vs the Reuters Research consensus of $0.24, and revenues of $416-422 mln vs an estimate of $419.4 mln.

CheckPoint Software (CHKP) 17.47 +0.44: Avondale upgraded CheckPoint Software (CHKP) from Market Perform to Market Outperform and raised price target to $21.50 from $20, given the co's signing of a merger agreement with Zone Labs, Inc. Zone Labs anticipates contributing $42 mln in Y04 revenue, up from $28 mln in Y03. Apprx 50% of Zone Labs revenue is in the small office enterprise market, with the remaining 50% in the personal firewall market. According to IDC, in 2001, Zone Labs had 20% market share in the personal firewall segment, more than any other vendor. Strategically, firm thinks this is a good move. Check Point for a number of years has been trying to penetrate the small enterprise market but never has gained meaningful traction. Additionally, firm believes this could jump start revenue growth for Check Point, which in firm's view, one of the reasons for the lower multiple on CHKP was because of the dim prospects for growth.
RBC Capital Mkts upgraded Sector Perform to OUTPERFORM. Target $19 to $25. Believes Zone Labs acquisition demonstrates mgmt's commitment to renewing rev growth by entering new segments of enterprise security mkt.


CheckPoint Software (CHKP) 17.47 +0.44: Avondale upgraded CheckPoint Software (CHKP) from Market Perform to Market Outperform and raised price target to $21.50 from $20, given the co's signing of a merger agreement with Zone Labs, Inc. Zone Labs anticipates contributing $42 mln in Y04 revenue, up from $28 mln in Y03. Apprx 50% of Zone Labs revenue is in the small office enterprise market, with the remaining 50% in the personal firewall market. According to IDC, in 2001, Zone Labs had 20% market share in the personal firewall segment, more than any other vendor. Strategically, firm thinks this is a good move. Check Point for a number of years has been trying to penetrate the small enterprise market but never has gained meaningful traction. Additionally, firm believes this could jump start revenue growth for Check Point, which in firm's view, one of the reasons for the lower multiple on CHKP was because of the dim prospects for growth

eFunds (EFDS) 17.35 +0.37: eFunds and MasterCard, today announced the formation of a debit processing alliance, creating MasterCard Complete Debit Processing (CDP). Effective immediately, MasterCard will market eFunds' EFT Processing Services under the MasterCard Complete Debit Processing brand and as an integrated component of the MasterCard Debit program.

FactSet (FDS) 39.60 -1.10: Before the open, reported Q1 (Nov) earnings of $0.39 per share, in line with the Reuters Research consensus of $0.39; revenues rose 8.2% year/year to $59.3 mln vs the $58.8 mln consensus. Company sees Q2 revenues of $59.5-61 mln, consensus $60.66 mln, forecasts Q2 operating margins of 35-36%.

GTECH (GTK) 48.27 +0.47: Before the open, reported Q3 (Nov) earnings of $0.64 per diluted share, excluding after-tax, non-cash gain of $3.3 mln or $0.05, $0.01 better than the Reuters Research consensus of $0.63; revenues fell 0.6% year/year to $254.9 mln. Co also guides Q4, sees EPS of 0.63-0.68, vs the R.R. consensus of $0.68, and sees Y04 EPS of $2.70-2.75 (ex items), vs the R.R. consensus of $2.73.

Hyperion Solutions (HYSL) 29.70 -0.90: JP Morgan downgraded Overweight to NEUTRAL. Believes synergies from Brio will likely not take hold until Q3 at earliest and that Street ests may be too aggressive for FY04-05.

NetIQ (NTIQ) 12.76 +0.11: To cross license with WebSideStory. Under the agreement, NetIQ will have certain rights toWebSideStory's U.S. Patent No. 6,393,479, and WebSideStory will have certain rights to NetIQ's U.S. Patent No. 6,112,238. Additional details of the agreement were not disclosed.

Roxio (ROXI) 4.36 -0.31: Company responded to Optima Technology's allegations of patent infringement by saying it is "aware of the Optima '531 patent and the claims within and believe that any claim of infringement by Roxio's software products is utterly without merit." Co intends to aggressively defend itself in this litigation.

Secure Computing (SCUR) 14.35 +0.23: Brean Murray reiterated their Buy rating and raised their target to $18 from $15; firm says the co is positioned for significant margin expansion, the addition of N2H2 should add to visibility via the deferred rev account, co is well-positioned as the firewall mkt transitions from 85% stateful inspection to a lesser mkt share, and the co has one of the highest exposures to security spending within the Federal Govt, and in particular the highly sensitive defense agencies.

Webzen (WZEN) 10.00 -1.17: Webzen priced its IPO of 8.7 mln American depository shares at $11.17. Webzen is a developer and distributor of online games in Korea. Its current game "MU" is a 3D multiplayer online role playing game that has grown since its introduction to become one of the most popular online games in Korea and China. The co plans to introduce MU and other online games for customers in Korea, China and the US. For the six months ended June 30, the co posted revenue of US$22.3 mln and operating income of US$13.8 mln... This is a JP Morgan-led deal. Each ADS represents one-tenth of a common share, which trade in South Korea.

Telecom Equip
Applied Signal (APSG) 21.55 +0.70: After the close, reported Q4 (Oct) earnings of $0.26 per share, $0.06 better than the Reuters Research consensus of $0.20; revenues rose 25.7% year/year to $29.1 mln vs the $26.0 mln consensus. Co. announced it has increased its quarterly dividend payment to $0.125 per share, raising its dividend yield to 2.33% from 1.20%.

Motorola (MOT) 13.33 +0.54: Named former Sun Micro exec Ed Zander as CEO. Company's board unanimously elect former president and C.O.O. of Sun Microsystems, and more recently managing director of Silver Lake Partners, Edward J. Zander to succeed Christopher B. Galvin as chairman and CEO of Motorola. Zander will join MOT in his new capacity effective Jan. 5, 2004.

UTStarcom (UTSI) 36.86 -1.04: Co signed a $10 mln expansion agreement to its existing contract with First International Telecommunications Corp of Taiwan (FITEL) to offer P.A.S. services in the southern city of Kaoshong. This brings the total value of contracts signed with FITEL to approx $70 million to date.

Telecom Services
: Convergys (CVG 16.47 +1.30). Amdocs (DOX 22.00 -3.27
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