Breaking the long stupor of the holidays, tech analysts across Wall Street issued a flurry of bullish comments and a handful of upgrades Thursday. Only a week before what's widely expected to be a benevolent earnings season, the news offered one more excuse for investors to bid up hardware and chip stocks.
The Philadelphia Stock Exchange Semiconductor Index was recently up 2.4% to a 52-week high of 540, while the Standard and Poor's Computer Index gained 1.4% to 359. The
was lately up 0.9% to 2095.52, trading at another 29-month high.
Among the reasons for the tech sector's latest advance:
upside surprise, as well as improved sell-side recommendations on
and an early positive read on
Thursday morning also saw upbeat commentary on a passel of chipmakers that supply Nokia, including
. Finally, an investment bank issued upgrades of
Sun Also Rises
In the most dramatic move, shares of Sun vaulted 10% after Banc of America upgraded it to a buy from a neutral rating, saying its new link-up with
Advanced Micro Devices
could mark the much-needed structural change Wall Street has been demanding.
"In the past, our view is that Sun was not serious about offering and promoting x86 platforms," said a note from analyst Keith Bachman. Now, he said, the company seems to be finally getting serious about the fastest-growing part of the server market: In March it will start offering systems running AMD chips.
Bachman said Sun also represents a leveraged play on enterprise spending, which many expect to improve in 2004.
The risks are that enterprise spending slows down after a strong December and that Sun will boost revenues but prove unable to improve margins. "More near term we believe there is a risk of the stock trading off after the call given the recent run," Bachman added. "More specifically, we believe that high-end expectations for both revenues and EPS will prove to be just that, too high." (Sun reports earnings Jan. 15 after the close.)
In any case, investors who own the shares "will need a few quarters of patience for the story and valuation to unfold," he said. Banc of America hasn't recently banked for Sun.
Given the potential for the shares to decline near term, Bachman emphasized that his upgrade isn't a trading call, but an assessment of improvement in Sun's long-term fundamentals. But patience is not the market's current watchword: Sun shares were recently up 50 cents, or 10%, to $5.50 and have now jumped over 21.5% since the beginning of the year.
Meanwhile, Goldman Sachs said it's gotten good vibes about business at H-P, now in the final month of its January quarter. Analyst Laura Conigliaro predicted H-P's consumer business exited the holiday season "at least in line with expectations and probably better," with PC and printer hardware inventories apparently down slightly from October quarter levels and pricing slightly less aggressive than the past quarter.
Only yesterday, Goldman said both H-P and
should benefit from an
improving outlook for corporate spending on computers in 2004. It said Dell should be the biggest beneficiary, though.
With consumer products accounting for some 30% of sales and nearly half of profits, Conigliaro thinks H-P could be poised to slightly beat expectations for the January quarter, assuming the final month goes well. The current Wall Street consensus stands at earnings per share of 35 cents and sales of $19.4 billion.
The bottom line: If H-P can build on a solid October quarter with more consistent revenue and earnings growth, she thinks the stock could trade up slightly to around $25. By midafternoon Thursday, though, the stock had already almost hit that level, shooting up $1.19, or just over 5%, to $24.55.
Goldman has done investment banking for H-P within the past year.
Also, after Nokia boosted its fourth-quarter earnings expectations, Lehman followed up with an email and blast fax saying the news bodes well for chipmakers that supply the company.
On the networking side, those suppliers include TI and
, each recently up more than 5%, and Xilinx, lately up about 3%.
Texas Instruments also draws a hefty portion of its sales from chips used by Nokia's handset division, and
RF Micro Devices
are big wireless suppliers to Nokia too.
Lehman didn't make any formal changes to its estimates for those silicon suppliers, but said the news offers one more incremental piece of news that they're enjoying strong quarters. (Investors in Texas Instruments got an early read on that when the company
raised guidance back in December.)
Finally, Pacific Growth Equities analyst Jim Liang upgraded Vitesse from equal weight to overweight. After a restructuring the company is now focused on some of the hottest tech markets, including the Gigabit Ethernet infrastructure and fibre channel storage market, Liang said. Vitesse tacked on 27 cents, or 4.2%, to $6.72.
Liang also upgraded Maxim and Linear to equal weight from underweight in light of strong near-term business trends; he thinks both could exceed consensus expectations on sales and EPS for the just-finished December quarters. Those stocks were little changed, with Maxim up 14 cents, or 0.3%, to $53.29, and Linear down 14 cents, or 0.3%, to $43.57.
Xilinx, which was also upgraded to an equal weight from underweight, could also deliver upside to its raised guidance of 6% to 9% sequential growth in the September quarter, he added.
Pacific Growth hasn't done investment banking for any of the upgraded companies.