Sector Investing

[ReturntoSender]

RobBlack.com MarketWrap:

http://www.robblack.com/rb_marketwrap.shtml

Late-day buying pushed the Dow to its best close in over 11 months and the S&P 500 to its highest level in nearly a year, as investors clung on to hope that growth in the economy and corporate profits will accelerate in the second half of 2003. The S&P 500 gained 1 point (+0.1%) to 998. The DJIA rose 13 points (+0.2%) to 9196. The Nasdaq, which gets 41 percent of its value from computer-related companies, gained 7 points (+0.5%) to 1653. Government bonds advanced for a fourth session, with issues with longer maturities again capturing the most aggressive buying. The 10-year Treasury note rallied 12/32 to yield 3.165 percent while the 30-year government bond jumped 28/32 to yield 4.215 percent. In the currency sector, the U.S. dollar edged down 0.2 percent to 117.58 yen while the euro advanced 0.1 percent to $1.1763.

Strong Sectors: internet, storage

Weak Sectors: tobacco, grocery, biotech, drug store, semiconductor, oil & gas driller, homebuilding, furniture, software, REIT, medical device

Top Stories . . . The number of people collecting unemployment benefits in the last week of May increased to the highest in two decades as companies wait for the economy to accelerate before hiring or spending more.

PeopleSoft rejected a hostile $5.1 billion bid from rival business-software maker Oracle, saying it's too low, causes uncertainty for customers and would face antitrust scrutiny.

Three former employees of Dynegy, a Houston power producer brought close to bankruptcy last year by energy-trading losses, were indicted on fraud charges and sued by securities regulators for a financing transaction that allegedly disguised the company's financial condition.

Guidant agreed to plead guilty to 10 felony counts for concealing that its product to prevent aneurysms had failed in thousands of patients, including 12 who died. The medical device maker will pay $92.4 million, a record penalty for failing to report malfunctions to regulators.

Oracle Corp., the world's third- largest software maker, said fourth-quarter profit rose as new software sales gained.

Of Note . . . Banc of America made the following changes in their Fresh Money Focus List. The firm removed Disney and replaced with Comcast, removed Lennar and replaces with Apache, and removes Metlife and replaces with Alcon.

Index Changes . . . The Philadelphia Stock Exchange will make the following changes to PHLX Semiconductor Index (SOX) before the open of business Monday, June 23: STMicroelectronics and Taiwan Semiconductor will be added to the Index, while Lattice Semiconductor will be deleted.

Eco Speak . . . The closely watched four-week average of initial jobless benefits requests rose 2,250 to 433,750. For just the week ended June 7, initial claims dropped 17,000 to 430,000. A Labor official said some volatility tied to the Memorial Day holiday was still surfacing in the data. He recommended using the average as a better gauge of current labor market conditions, particularly around holidays. The number of Americans who remain on benefits rolls rose 120,000 to 3.80 million, the highest level since April 1983.

Plunging gas prices masked a moderate rise in U.S. retail sales in May. With gas station sales sinking 4.3%, U.S. retail sales increased just 0.1% in May after a downwardly revised 0.3 percent drop in April. Excluding gasoline, however, sales rose a modest 0.4%. Auto sales fell 0.2%. Retail sales are now up 5.1% in the past 12 months. Most retail outlets outside the auto and gas sectors fared well in May. General merchandise stores reported a 0.7% increase in sales. Electronics and appliance stores saw sales surge 2.9 percent, the biggest increase in 18 months.

U.S. import prices fell 0.3 percent in May. Non-petroleum import prices fell 0.2 percent. Non-fuel import prices fell 0.3 percent, the largest decline since the statistical series was launched in December 2001. Capital goods prices fell 0.4 percent, while consumer goods prices were flat. Over the past 12 months, import prices are up a tame 1.5 percent. Export prices, meanwhile, rose 0.1 percent in May, the fourth increase in the last five months. Non-agricultural export prices fell 0.1 percent last month.

Why so many convertibles? . . . Standard & Poor's noted that global convertible issuance has received a boost from the rising appetite for risk among investors amid a low-interest-rate environment. S&P said rock-bottom rates has spurred an active search for higher yield among investors, leading to narrower spreads for both investment-grade and speculative-grade securities. "These issuance conditions provided the stimulus for an overall increase in bond market activity in May. Still, convertibles showed disproportionate growth, raising their share of total bond market activity," commented Diane Vazza, head of S&P's global fixed-income research group. "As a result, issuers are taking advantage of the favorable funding opportunity to pay down existing debt, reduce overall leverage, and refinance existing debt."

Poli Speak . . . The White House urged the House to pass a bill Thursday that would extend the expanded child tax credit to more lower-income families, as well as to many upper-middle class families. The House version is expected to cost the Treasury about $82 billion over 10 years, far greater than the $10 billion price tag on the Senate version. In a statement, the White House asked the House and Senate to quickly resolve their differences. Final passage of the larger House bill is problematic because it would likely need 60 votes to pass in the Senate. Democrats and fiscally conservative Republicans insist that offsets be found to reduce the impact on the federal deficit.

The House approved legislation Thursday that would change the way most class-action lawsuits are filed and tried. The measure, strongly backed by the business lobbies, would push most suits into federal courts, where judges and juries are less likely to award massive damage payments. The bill would change the rules retroactively and would allow defendants to delay litigation. Supporters are confident they will muster the necessary 60 votes in the Senate.

IPO Mania . . . FormFactor priced its initial public offering at $14 per share, above its already upped price range of $11 to $13 per share, as the maker of semiconductor wafer probe test cards for making semiconductors readied its debut. FormFactor had boosted its price range from $9 to $11 per share in a sign of strong demand. The company is raising $84 million by offering 6 million shares with underwriter Morgan Stanley. It's the first tech firm to debut since Seagate on Dec. 11.

Financials . . . H & R Block reported earnings of $2.77 per share, excluding a $0.06 charge, which was $0.06 worse than the consensus of $2.83, First Call consensus was $2.79. Revenues rose 2.1% year/year to $1.92 billion versus the $1.985 billion consensus. Looking ahead, the company said it expects earnings and revenue growth of 13 to 18 percent and 10 to 15 percent, respectively, both within long-term target ranges. Separately, the company said it was authorized by its board of directors to buy back up to 20 million shares of its stock, or approximately 11 percent of the shares outstanding.

J.P. Morgan sees a "modestly improved outlook" for the life insurance group, as a stronger equity market helps offset spread compression, lower long-term yields and investment losses. Analyst Michelle Giordano's favorite names in the sector are Hartford Financial and Prudential Financial, and favors Nationwide and Lincoln Financial as a way to participate in the improving equity market. She added that MetLife and John Hancock are good ways to play the improving credit markets.

Virginia Financial said it would buy eight branches from First Virginia Banks. The branches are located in Covington, Tazewell, Woodstock, Rocky Mount and Farmville. The branches, with $79 million in loans and $226 million in deposits, are being divested as part of First Virginia's merger with Winston-Salem, N.C.-based BB&T.

Fannie Mae was downgraded at Wachovia to Market Perform from Outperform based on their belief that FNM faces increased risk of higher capital requirements imposed by regulators. The firm can no longer rule out Congress making substantial changes to the Office of Federal Housing Enterprise Oversight and/or the agencies current risk-based capital requirements, and is concerned that FRE's accounting issues, while still resolvable, are likely to serve as a tipping point for Congress to make substantial changes to OFHEO. The firm sees valuation range of $60-$75.

Freddie Mac was downgraded at Wachovia to Market Perform from Outperform. Given FRE's current accounting issues, the firm believes the risk of regulatory intervention will continue to increase, and given the importance of the GSE's to the capital markets, they fear that future actions by regulators will be tilted towards protecting bondholders at the expense of shareholders. The firm sees valuation range of $41-$52.

Energy . . . A unit of the Calpine's Calpine Energy Services L.P. subsidiary priced two offerings of senior notes worth a total of $802 million. The offerings include $340 million in 5.2 percent senior secured notes due 2006, and $462 million in 6.256 percent senior secured notes due 2010. Calpine said the notes are secured by fixed cash flows from long-term power sales agreements with the State of California, and a new agreement with a third party. The company plans to use the proceeds to fund capital spending.

Duke Energy was cut to Sell from Hold at A.G. Edwards. The firm believes stock could experience downside should Moody's downgrade Duke Capital to below investment grade or should DUK take actions to avoid a potential double notch downgrade. Also believes DUK's valuation should reflect some risk that the margin from merchant generation is not achieved.

Transports . . . Inventories at auto dealers ballooned in April by 1.2 percent, sending total stocks at U.S. firms up by 0.1 percent. Inventories increased 0.3 percent in March. Meanwhile, sales at U.S. retailers, wholesalers and manufacturers fell 1.5 percent in April, the biggest decline since the terror attacks in September 2001. For the most part, firms adjusted quickly to lower sales by cutting back on orders, keeping the growth in unsold goods to a minimum. The inventory-to-sales ratio rose to 1.40, matching a 14-month high.

Goodrich target raised to $25 at Bank of America. The firm is saying prospects for commercial aerospace continue to improve and GR should be one of the first to benefit as the aerospace market recovers.

The inventory of parked aircraft remains a major point of contention regarding views on the commercial aircraft demand. An aggregated parked aircraft figure makes the overhang of excess airliner capacity appear a lot worse than what we believe is the actual case. Of an inventory of approximately 2,100 parked aircraft, continue to expect that roughly 500-600 jets could return to service. This estimate is approximately 50% lower than more bearish assessments seen lately. As of mid-May, of the parked fleet, 454 were 727s, 224 were 737-100/200s, 183 were three engine wide body jets, 234 were early generation regional jet types, 157 were DC-9s and 140 were “antiques.” These older aircraft types will not be returning to service with major airlines. Most were built in the 1970s and some types, such as the 727, have been phased out of major U.S. airline fleets. Comparing the current parked fleet to 1993, which was the last peak in the parked fleet misses the point that the 727 and DC-9 fleets were younger and these types were still used by most major airlines. Barring another major exogenous shock to air travel, the parked fleet is peaking and the modern aircraft types could be recalled to service in late 2003-04. Additionally, scrappage of older aircraft types might also accelerate. If the parked fleet is so attractive, or such an overhang, investors need to ask why airlines such as JetBlue, USAirways and easyJet have ordered new aircraft in recent months and why other airlines are assessing new single aisle jet purchases.

Consumer Durables . . . Whirlpool reaffirmed 2003 EPS guidance of $5.90-6.10 versus consensus of $5.56.

Tobacco . . . A direct appeal of a multibillion-dollar damages verdict against Altria unit Philip Morris was rebuffed by the Illinois Supreme Court Wednesday. The tobacco titan had been seeking to have the state high court rule directly on a circuit court's decision to award $10 billion in a class-action case that charges the company with deceiving consumers into believing that "light" cigarettes were less harmful to their health. The case will now go through the usual appeals process.

Food & Beverage . . . Heinz reported net income of $102.6 million, or 29 cents a share, down from 63 cents a share in the year-earlier period. Excluding non-recurring items, earnings for the quarter ending April were 52 cents a share, a penny shy of the average analyst forecast compiled by Reuters Research. Revenue rose 6 percent to $2.19 billion, ahead of the $2.09 expected by analysts. For the full fiscal year, earnings were $2.03, matching expectations, and revenue totaled $8.24 billion. Looking ahead, the branded foods producer expects to earn $2.15 to $2.25 a share, surrounding analyst forecasts of $2.21, and is targeting sales growth of 3 to 4 percent.

Coca-Cola Enterprises was upgraded at Smith Barney based on valuation as well as their belief that 2H03 may not be as challenging as previously thought as the company laps the introduction of Vanilla Coke. Price target is $24.

Retail . . . AutoZone will repurchase an additional $500 million in stock.

Winn-Dixie said that earnings would fall well below expectations for the fourth quarter, which ends June 15. On a per-share basis, earnings will fall into a range of 28 cents to 31 cents, the grocer said. Analysts had a consensus expectation of 38 cents a share. Sales at stores open more than year are expected to rise 3 or 4 percent in the quarter. Winn-Dixie blamed a "difficult economic and competitive environment" for the shortfall. Last week, bigger rival Albertson's warned that its sales and profits were running below expectations.

Target declared a quarterly dividend of 7 cents per common share, payable on Sept. 10 to shareholders of record on August 20. The payout represents an increase from the general merchandise retailer's last dividend of six cents per share, which shareholders received on June 10.

eBay raised stake in Chinese e-commerce company. The company agreed to increase its investment in EachNet, "the leading e-commerce company in China." eBay will acquire all of the remaining outstanding common stock of the company. EachNet currently has more than two million confirmed registered users who trade a wide variety of items on its website.

eBay price target is raised to $125 at Soundview. Despite near-term VAT/MercExchange issues, the firm believes the co's long-term rev and cash flow growth opportunity remains firmly on track and that earnings power in the $2.75-$3.00 range in FY05 suggests further upside in the stock. Firm also raised their target on AMZN to $40 from $30.

Healthcare . . . AdvancePCS was downgraded at AG Edwards to Hold from Buy based on valuation, saying the stock has become somewhat over-extended at 16x their 2004 EPS est., a 13% premium to the co's 2000-02 midpoint on a forward P/E multiple basis.

Medical Devices . . . Boston Scientific was upgraded at Prudential based on comments by CFO Larry Best that the Taxus IV trial had not only met its primary endpoint, but that the data is likely competitive with Johnson & Johnson's. Given the reasonable valuation at 20x 2004 consensus and considering the now-lower scientific risk. The firm sees minimal downside from current levels. Price target is $78. Separately, UBS Warburg also raises their target to $75 from $65.

Drugs . . . Teva Pharmaceutical and Mylan Labs extended gains on after President Bush said the Food and Drug Administration would remove obstacles to quick approval of generic drugs. The FDA will issue rules that would limit the delaying tactics used by drug companies to protect their patents from competition from cheaper substitutes. Bush said the measures would save consumers about $3.5 billion every year by lowering the price of prescription drugs. Bush also urged the House and Senate to approve legislation that would expand drug benefits for seniors under Medicare.

Merrill Lynch reinstates coverage of Teva Pharama and TARO Pharma with Buy ratings Teva gets a $62 target. The firm says the co may be the single best way to invest in the generic theme, as it has the leading market share position in the U.S. generic market and has the largest pipeline of generic products in the industry. The firm also reinstates coverage of TARO with a Buy rating and $63 target. The company has critical mass in the generic topicals market, its base business offers significantly more stability than most company's in the generic industry, and it maintains significant operating leverage as well.

Biotech . . . InterMune announced a lower-than-expected revenue estimate while the other reported positive results from trials of an antibiotic drug. InterMune subsequently said it planned to issue corrections and both statements should be disregarded.

Maxim Pharmaceuticals said results from a Phase III trial of its lead cancer drug candidate Ceplene showed that the survival benefit in patients with advanced skin cancer was achieved without adversely affecting patient quality of life. Ceplene is an investigational drug that has not yet been approved by the U.S. Food and Drug Administration. Maxim expects to file an application for marketing approval in Europe in late 2003.

UBS Investment Research lowered its rating on Medimmune to "neutral" from "buy" citing valuation. The firm said it's confident that Medimmune's FluMist product will receive approval in the second quarter, but it believes this event is already reflected in the stock price. UBS remains bullish on the company long-term and it expects an update on the launch of FluMist and marketing strategies when Medimmune hosts an analyst meeting on June 27.

Ariad Pharmaceuticals expects to receive roughly $1 million in license payments over the next twenty months from licensee GPC Biotech's expanded collaboration agreement with Altana Pharma AG. Ariad will also receive a certain percentage of payments that GPC receives from Altana.

Hotel & Leisure . . . David Anders at Merrill Lynch downgraded Hilton Hotels and Starwood Hotels to "neutral" from "buy" on valuation concerns, following the stocks' recent relative outperformance. Anders believes Hilton and Starwood are "on track" to meet second-quarter and full-year earnings expectations, but feels significant valuation expansion is unlikely given valuations have approached the higher end of historical ranges.

Media . . . XM Satellite Radio priced a $175 million high yield offering of 12 percent senior secured notes due 2010. The company granted the initial purchaser of the notes an over-allotment option to purchase up to an additional $25 million in notes.

Telecom . . . Further gains from Sprint PCS operational improvements limited. Reduced churn much faster than expected, pushing PCS up 49% since mid March. While expect further gains in ARPU, net adds and EBITDA, DCF shows only 14% upside. Recombination of the PCS and FON tracking stocks appear increasingly likely. While this makes strategic sense, expect it to limit the upside. Assume that post-recombo FON would trade on a P/E basis. Due to estimated earnings dilution, we calculate 21% downside to PCS shares based on 2004 estimates. Sprint FON currently pays $.50 annual div. (3.6% yield). If FON maintains dividend, could support FON shares in $12 range, limiting downside. Given continued churn control, steady sub adds, uptake of data services that offset ARPU decline, and positive EPS and cash flow, expect wireless industry multiples to expand over the coming year.

AT&T Wireless should demonstrate the same industry-wide improvements cited above for Sprint PCS, without the risk that its results will be blended with a negative growth business. Improving operating metrics, particularly falling costs, should enable us to increase estimates over the coming two years. CEO has promised an “industry leading” cost position by yearend 2004. That implies CCPU in the low 20s, consistent with Verizon, Cingular, T-Mobile and Nextel. Far below AWE’s current $30.60. Currently, analysts have assumed only very modest CCPU improvements to about $29 in 2004, leaving considerable room for further reductions. Additional upside from re-financing the $1.1 billion debt acquired with TeleCorp. AWE could refinance, leading to EPS upside of 5-10% on current estimates. Greater scale. AWE is passing Cingular to become the 2nd largest U.S. wireless carrier after Verizon Wireless. PCS comes in fourth ahead of only NXTL and T-Mobile. Upside from Local Number Portability. While we expect the implementation of local number portability to initially increase churn, believe carriers will be impacted differently, with those carriers offering superior service or discounted pricing to fare better. Expect Verizon Wireless and AWE to excel for superior network coverage and robust next generation services and T-Mobile as the top low cost alternative.

Sprint Chief Executive William Esrey is entitled to $9 million in compensation and consulting fees according to the executive's severance agreement filed Wednesday with the Securities and Exchange Commission. The telecommunications firm will pay Esrey $270,833 a month for 12 months for consulting services, another $270,833 a month for 18 months and a bonus for $895,833, the filing said. In addition, after 12 months, Sprint will pay Esrey $4,400 each day he serves as a consultant for the company. Esrey stepped down from the position he held since 1985, in March.

Consumer Electronics . . . TiVo licenses technology to Pioneer for the development of products that will be available later this year.

Xybernaut (mobile computing technology) has received a patent from Japan for its 'way point' technology, which involves leaving and retrieving messages and data of all types at specific locations, or coordinate way points, within a commercial mobile radio service provider network. Xybernaut said it's in talks about intellectual property licensing applications with corporations, government entities and other organizations.

IT Services . . . Keane reaffirmed its second quarter cash earnings and revenue forecasts of 10 to 12 cents a share and $200 million and $210 million, respectively. Earlier, the technology consulting firm approved a 3 million share repurchase program and announced plans to offer up to $125 million in convertible debt.

Storage . . . Presenting at the 14th Annual Bear Stearns Technology Conference, JNI CEO Russ Stern noted that JNI's target is to be a viable 3rd supplier of Fibre Channel HBAs. While the server/storage OEMs clearly want to lower the cost of SAN components and there's opportunity for JNI, it's not clear if JNI can gain traction given its record of inconsistent execution and weak market position. JNI is highly speculative play given its competitive challenges but on the positive side, the company continues to have a strong balance sheet with $95 million in cash or $3.61 in net cash per share. JNI appeared optimistic about its prospects at Sun as a second source of Fibre Channel HBAs (besides QLogic), but it's too early to tell how successful JNI can be here. JNI noted that it is planning to expand its presence in to the Windows market with new products to be launched in the next 60 to 90 days which according to JNI could help position JNI as an alternative to Emulex and QLogic who are significantly stronger than JNI in the HBA market -- JNI noted that the high "duopoly pricing" in the HBA market affords it opportunity to grow if it can execute.

Network Equipment . . . Lucent Technologies won a contract worth tens of millions of dollars to build an optical fiber network in Beijing's suburbs. The telecommunications equipment maker will build the network for Beijing Communication, a subsidiary of China Netcom, the country's second largest fixed line telephone company, the report said. Lucent, which plans to open a $50 million research center in China this year, is also talking to China's major telephone operators on future 3G wireless telephone contracts, it said. Lucent's officials were not immediately available for comment.

3Com will cut 10 percent of its workforce to cut costs. The cuts are to be carried out over the next two quarters. The company would not say how many workers it would cut, but it had 3,900 employees at the end of its third fiscal quarter in February. The bulk of the layoffs are expected to come from 3Com's Santa Clara, Calif. headquarters, which the company is in the process of moving to Marlborough, Mass. 3Com shares rose 4 cents to $5 shortly after trading began.

Ericsson was awarded a $30 million contract to expand the mobile communications system, based on the GSM wireless standard, of China's Hebei Mobile Communications. The U.S.-listed shares of the Swedish communications equipment giant are gaining 19 cents to $11.96 in pre-open trading. Ericsson will provide GSM switching and radio components.

Paradyne Networks announced a workforce reduction of 55 employees, or 12 percent, as it attempts to align is operations with the current telecommunications industry environment.

Semiconductor Equipment . . . Bryon Walker at UBS Investment Research downgraded Novellus Systems to "reduce" from "neutral," based solely on valuation, but raised his price target to $28.50 from $25. The stock is up 33 percent since the end of April. "Our rating change does not reflect a change in our view of Novellus' fundamentals, and is strictly a function of the expected return to our 12-month target," Walker said.

ML downgraded Taiwan Semi from Buy to Neutral on valuation grounds. The stock reached a mid-cycle fair value of NT$55/ord. and exceeded our $8.90/ADS price objective. Strong May sales (10% Quarter over Quarter) and recent foundry-fabless differential (FFD) reaffirm belief that orders have run ahead of end-demand (SCM Quarterly, 20 May). As a result, TSMC could beat 25.2% 2nd quarter forecast, but the May FFD increased to 7.5ppt from 5.8% in April. ML analysts are raising our 2nd quarter forecast to 29% Quarter over Quarter and lowering 3rd quarter to flat. Attribute strong 2nd quarter orders to a share gain in global CMOS Logic manufacturing, but believe about half the incremental growth is attributed to product introductions and supply-chain rebuild. Foundries appear to be growing 15-20ppt faster than sell-through, which is about half the 33ppt level in 2nd quarter 2002. At the same time, the lack of forecast upgrades from either fabless or OEMs raises the risk of a correction. Still, believe it is inappropriate to become negative on the stock, given TSMC's 0.13um product cycle and market share gains. The Neutral rating implies up to 20% share price appreciation over a 12-month horizon. The market has appropriately valued TSMC on a mid-cycle (80% utilization) basis at NT$55-60. Any further appreciation in the stock would be hard to justify, without discounting more than a gradual recovery. Anticipate a short-term correction on falling order momentum, but expect the stock to recover to its current trading range as utilization is likely to settle at 80% by year-end.

Met with Applied Material and KLA Tencor management yesterday – little new. Though both have provided flat June/July guidance that many view as conservative, this Quarter remains tough to predict. Despite encouraging signs, AMAT, KLAC continue to be very cautious on Taiwan Semi orders before July. KLA-Tencor is seeing increased activity & shipment pull-ins this Quarter from TSMC which is another good sign. AMAT 3rd quarter is too early to call flat guidance. Tracking 8-10 $100 million+ orders – conservatively assuming only several close this 3rd quarter. Despite N-T caution, we’re encouraged by 2nd half 2003 outlook. Suggests orders could be up 20% 1st half 2003 to 2md half 2003. Orders up 25-30% in ’04 “possible”. Overall body language/tone appears better. Very well positioned for the upturn. KLAC sticking to flat June order story. No big chunks. Japan continues to strengthen/broaden. Still expecting 2nd half ramp. Flat Quarter could disappoint.

Semiconductors . . . Lattice Semi is benefiting from a continued modest recovery in end markets. Expect guidance for flat to low single digit Quarter/Quarter revenue growth on the mid-Quarter update on June 12. Checks show strength in FPGA business as telecom end markets experience improvement. It is easy to find some weakness in low end CPLD. Believe the company is on track for at least $59 million and $0.02 EPS. Longer term, distribution channel may boost growth. As Xilinx shifts more top customers away from distribution to a direct model, we expect Avnet to focus more on LSCC at large customers. Continue to believe that PLDs will outperform the overall semiconductor market once end markets improve.

Satya Chillara at WR Hambrecht raised second-quarter earnings estimates for SanDisk (storage card maker) due to strength in the digital camera market and added the stock to the firm's "analyst select" list. Chillara said research suggests the company has secured design wins with Japan's Kyocera and South Korea's Samsung. On Wednesday, SanDisk and Japan's Toshiba announced the development of a new high-density flash memory cell structure

Cypress Semi reiterated guidance for the 2nd quarter indicating that they were comfortably on track. Management was optimistic about the company’s long-term outlook, citing current capacity utilization of 90% but also confirmed that they have little visibility. The company’s PC clock business is expected to be flat to slightly up for the quarter, which we believe is indicative of market share gains. The company views wireless USB and programmable system-on-chip (PSOC) as areas of future growth.

National Semi management emphasized its transformation into a pure-play analog company with a renewed focus on profitability. The restructuring plan, announced in February, is almost complete with the divestiture of the Information Appliances (IA) business expected to be complete by quarter-end. With its renewed focus on analog, management’s new capex target is 10% of revenues going forward, compared to a historical 15-20%. The company indicated that gross margin in the high 40s/low 50s is achievable on a sustained basis ・The company was generally optimistic about its prospects in power management.

Power Integrations management reiterated revenue and margin targets for the year. The company expects 15% market share growth in a flat market for 2003 and 48-50% year-end gross margins, slightly down from 51.8% in the Mar Quarter. ・The company was extremely optimistic, citing a growing addressable market and favorable market trends for its highly proprietary, highly integrated, power conversion products. The company is currently seeing share gains in LCD monitor and DVD player applications.

Boxmakers . . . In his keynote presentation at the 14th Annual Bear Stearns Technology Conference, Dell President & COO Kevin Rollins did not provide any new financial update, but indicated -- as he has said before -- that he isn't seeing any fundamental demand pickup, though he conceded that he is seeing an "attitudinal improvement" from customers which has yet to translate to increased requests for proposals. Commenting on geographies, Rollins indicated that the SARS impact in Asia was factored into Dell's guidance and has been overblown in terms of its effect on business activity. While many companies have pointed to weakness in Europe, Rollins felt that it was stable (Dell recently saw its best showing in Europe ever), but given Europe didn't contract as much as the US, it won't rebound as sharply. In his keynote, Rollins highlighted 3 themes: 1) the computer industry is bifurcating and Dell's standards-based

model is structurally advantaged; 2) Dell has near-term (servers, services, storage, S&P) opportunities that are strategic in nature and long-term (networking, printers, PDAs) efforts that are more opportunistic than strategic; and 3) standardization is moving up the enterprise stack.

Software . . . Symantec CEO made several encouraging comments at an investor presentation yesterday including positive commentary on the US economy and strength of newer enterprise offerings. North American IT spending improving but watch Europe, especially France and Germany. Newer enterprise offerings doing well. Non AV enterprise products (i.e., IDS, firewall) are growing faster than core AV offerings, showing SYMC continues to diversify beyond its historical base. No noticeable price pressure.

Oracle said it was "disappointed" that PeopleSoft officially turned town the software giant's $5.1 billion hostile takeover bid. Jim Finn, an Oracle spokesman, said PeopleSoft "has put the self-interest of management over the best interests of PeopleSoft shareholders" in rejecting Oracle's offer. Oracle also said PeopleSoft's board of directors has "refused repeated requests to meet with Oracle to discuss our offer."

Microsoft will acquire IP of GeCAD, a Romanian AV provider. According to IDC, GeCAD was not among the top vendors in rev implying MSFT gains no immediate market share. L-T, no certain plans but see AV offering. MSFT went to great pains to convince all it will cooperate with 3rd party vendors and said intends to offer AV signatures as a subscription service. As Smantec and Network Associates have enjoyed price increases, adding in MSFT could contain pricing power. SYMC has close to 50% of the total market while NET has nearly 30%.

Microsoft CEO Steve Ballmer filed documentation with the Securities and Excahnge Commission to sell nearly 6.6 million shares of his company's stock. In two separate documents, Ballmer filed to sell Microsoft share worth a total of about $162 million. The filings come after Ballmer, in late May filed to sell $950 million worth of Microsoft.

CIBC lowered its estimates on Peoplesoft and JD Edwards in light of the uncertainty that Oracle's bid has created in the marketplace.The firm believes the bid will negatively impact both companies' sales as buyers "wait for the dust to settle and see who's still standing". In addition, there is significant risk to PSFT's quarter given about 50% of its license revenue is signed in the last two weeks of the Quarter. JDEC is "temporarily insulated" due to quarter not ending for another 7 weeks. Field checks also indicate more than one system integrator not pitching PSFT solutions and product consultants have advised buyers to hold off on decisions.

The Wall Street Journal reports Moody's Investor's Services downgraded its outlook on Oracle to "negative" due to additional cash it would need to complete its hostile bid for People. The company's single A-3 rating was on its $300 million in debt securities were reaffirmed despite the lowered outlook.