Tech stocks roared upward in optimistic trading before the Thanksgiving holiday, despite less-than-spectacular guidance from a trio of technology companies yesterday. One likely explanation: the
raft of stronger-than-expected economic reports that came out today.
The reports showing higher than expected personal spending, growth in durable goods orders and manufacturing activity offer some support for the bull argument that a firming economy will fuel a rise in technology spending.
In contrast, the forecasts from tech outfits themselves were mostly underwhelming. Though
order forecast offered the potential for some sequential growth, and
revenue guidance was better than some had expected, assuming a 6% sales uptick, neither gave any indication that business fundamentals have turned to the upside.
fell unequivocally into the lousy category, with the company predicting a sequential revenue slide of 10%, excluding the effect of an acquisition.
In recent trading, TriQuint was a rare outlier in a sea of black, with shares plunging $1 or 14.2%, to $6.04. Meanwhile, Sun traded up 19 cents or 5.1%, to $3.95, while Novellus tacked on a hefty $3.05 or 8.89%, to $37.53. The Philadelphia Stock Exchange Semiconductor Index also was higher, up 6.6% for the day and more than 76% since Oct. 8.
How the December Quarter Is Shaping Up
Though investors rallied behind Sun today, the company said yesterday that it had seen no change in demand, and
predicted a slide in gross margins and rise in operating expenses. In response, several analysts said today they're dropping their earnings forecast for the 2003 fiscal year ending in June.
Lehman Brothers' Dan Niles cut his FY03 earnings estimate for Sun from flat to a loss of 6 cents. "Given Sun's positioning and continued mix shift to the low end, we remain on the sidelines," he wrote in a research note. Niles has an underweight rating on the stock; his firm hasn't done recent banking for Sun.
Calling Sun's forecast "slightly negative," Merrill Lynch's Steve Milunovich said in a note that pricing pressure is weighing on the company's gross margins. And with low-end systems in higher demand than the high-end servers that are Sun's traditional strong point, he believes the company could lose share to
. Merrill has no banking relations with Sun.
On a friendlier note, Deutsche Bank's George Elling called Sun's comments "somewhat encouraging," saying, "We believe the Street had been expecting a downward revision of revenue guidance." But he also lowered '03 EPS to a 1-cent loss from a prior break-even forecast. Deutsche Bank hasn't done any recent banking for the company.
Analysts for TriQuint also cut earnings estimates today. W.R. Hambrecht's Satya Chillara lowered his FY03 EPS forecast to a loss of 14 cents from the break-even point, citing a slew of risk factors. "We are cautious on TQNT's near-term prospects for share price appreciation, based on softness in core business lines, substantial dilution to FY03 EPS as a result of the pending acquisition, integration risk and increased exposure to a depressed optical market," wrote Chillara. Hambrecht has no banking relations with TriQuint.
The reaction to
comments from Novellus was more mixed. At Bear Stearns, Robert Maire noted that December quarter order expectations, which had been between $180 million and $200 million, now appear likely to be flat to up 5% from last quarter instead, likely totaling $200 million to $210 million. "The key here is that it is not all DRAM but appears to be broader demand across the board. If anything, it seems demand is firming up. We think the stock should react positively to this news," he wrote. Bear has no recent banking relations with Novellus.
But on the prospects for longer-term stock appreciation, Banc of America's Mark FitzGerald sounded unenthused. "We think the earnings power is limited, given our view of flat industry growth in 2003. The current stock price is discounting a more optimistic outlook," he wrote. Banc of America has done recent investment banking for Novellus.