From Briefing.com: 4:25PM Advanced Micro beats by 4 cents, sees sequential rev increase (AMD) 24.23 -0.25 : Reports Q3 (Sep) earnings of $0.27 per share, $0.04 better than the Reuters Estimates consensus of $0.23; revenues rose 31.5% year/year to $1.33 bln vs the $1.31 bln consensus. Gross margin was 51.4%, vs 56.8% in 2Q06 and 55.4% in 3Q05. The gross margin decrease was largely due to lower desktop processor ASPs which caused a decline in overall processor ASPs. Co's outlook excludes ATYT and acquisition-related charges. Co expects demand for its products to be seasonally strong in Q4 and sales to increase sequentially (Briefing.com note: co reported Q3 revs $1.33 bln, and Q4 consensus is $1.44 bln).
4:08PM Genesis Microchip and MStar reach settlement of patent infringement lawsuit (GNSS) 11.40 -0.23 : Co and MStar Semiconductor today announced they have settled the patent infringement complaints filed by Genesis Microchip against MStar in the U.S. Intl Trade Commission and entered into a license agreement. The ITC had previously ruled that certain controllers and products containing those controllers infringed Genesis Microchip's U.S. Patent No. 5,739,867 and issued an Exclusion Order preventing the infringing products from entry into the US. While the terms of the license agreement are confidential, they include a license of certain Genesis Microchip patents to MStar in exchange for undisclosed running royalties. This license allows MStar to ship the infringing products into the US.
4:20 pm : It took all of about one minute Wednesday for the Dow to garner the 50 points it needed to surpass the 12,000 level, as stocks got a big boost from Big Blue and a benign reading on inflation.
Proving more difficult, though, was sustaining such a gain as a wall of worry that stocks are overbought on a short-term basis was erected almost as quickly as the milestone was attained. Add to that volatile oil prices, relatively no validation in the bond market that core inflation at the consumer level is well contained, and split sector leadership and the bulls struggled to more convincingly keep the three-month rally intact.
Since earnings reports from several tech bellwethers the night before were mixed, investors initially waited for the September CPI report to set a more definitive tone to trading since it typically provides a helpful signal as to the direction of Fed policy. To the delight of the bulls, core CPI rose just 0.2%, in line with economists' forecasts and offering some relief following Tuesday's jarring headline increase on inflation at the producer level. Even though today's CPI data left the core rate at a decade-high 2.9% year/year, clearly higher than the Fed would like, the steady dose of 0.2% gains for a third straight month confirmed that the recent uptrend is moderating, easing the worst of inflation fears and providing further evidence that the Fed may again forego a rate hike at next week's FOMC meeting.
Meanwhile, International Business Machines (IBM 89.90 +2.95) opening up 4.1% at a new 52-week high after handily beating analysts' forecasts was the biggest reason behind the Dow eclipsing 12,000. Fellow Dow component Intel (INTC 21.16 +0.26), which also posted a better than expected Q3 report Tuesday night, provided additional market support but only managed to recoup a portion of the 3.3% sell-off in INTC shares that took a toll on all three major averages a day earlier.
In fact, a sell-off in Semiconductor Equipment, today's second worst performing S&P industry group (-4.8%), was largely responsible for removing some notable leadership in the Tech sector. Novellus Systems (NVLS 26.45 -2.12) said Q3 profits tripled, but issued downside Q4 revenue guidance, while Linear Technology (LLTC 30.54 -2.36) posted a 13% rise in Q1 earnings but also said it sees weaker than expected sales in its December quarter. Yahoo! (YHOO 22.95 -1.20) issuing downside Q4 revenue guidance and Motorola (MOT 23.70 -1.15) missing expectations on a 45% year/year decline in Q3 earnings added insult to injury for a sector where we believe valuations remain reasonable.
The only Dow component out with results today was JPMorgan Chase (JPM 47.13 -0.86), which also topped Wall Street estimates and played into our Overweight rating on Financials. However, company CEO Jamie Dimon again warning that JPM was benefiting from an unusually favorable credit environment that's not expected to continue prompted investors to consolidate gains that lifted JPM shares to a 52-week high last Thursday.
Fortunately for the bulls, leadership in other influential sectors like Health Care and Consumer Staples eventually helped to offset the lack of support from Technology and the profit engine that continues to be Energy. Oil prices, which were up earlier in the day following larger than expected declines in distillate and gas supplies, closed down more than 2.0% and below $58/bbl a day before tomorrow's emergency OPEC meeting.
Since packaging and transportation costs aren't likely to be as high as previously forecast, and lower oil should improve the profit margin impact of commodity-cost inflation, Consumer Staples continued to draw incremental relief from a pullback in energy prices. Despite the sector's defensive characteristics resonating with investors still questioning the pace of economic growth, it was Health Care that was the day's best performing sector as Johnson & Johnson (JNJ 68.15 +2.07) hit a new 52-week high after Prudential raised its price target on the Dow component from $59 to $70. DJ30 +42.66 NASDAQ -7.90 SP500 +1.91 NASDAQ Dec/Adv/Vol 1568/1485/2.17 bln NYSE Dec/Adv/Vol 1432/1831/1.62 bln
3:59PM Market View: Market unable to hold early gains, finishes mixed (TECHX) : New all time/multi-year intraday highs for the Dow/S&P 500 in opening action. However, the highs for the day were established in the first 15 minutes with profit taking in the wake of the opening run above the 12000 psych level for the Dow taking hold. Choppy, narrowly confined trade dominated after the first hour with overall results mixed. Weighing on the Nasdaq indices for the second day in a row was the Semi sector (SMH -2.5%) which has dropped as much as 6% off Monday's peak although it is attempting to stabilize at its 50 ema again (click for chart). Also on the defensive were Mining -1.8%, Gold/Silver -1.8%, Internet -1.5%, Oil Service -1.5%, Coal -1.4%, Disk Drive -1.2%, Steel -1.2%, Transports -0.9%. The best performers included: Healthcare +1.6%, Airline +1.4%, Pharma HOLDRS +1.3% and Utility +0.8%.
7:17AM Advanced Energy to provide complete flow subsystem package to LCD manufacturer for new, generation-7.5 FPD Fab (AEIS) 17.38 : Co announces it has won the entire mass flow subsystem business for the new, generation-7.5 flat panel display fab from a manufacturer of thin-film transistor liquid crystal display panels. This fab-wide design win includes AEIS' Aera Transformer mass flow controllers, mass flow meters, product training, installation support services, as well as Central Monitoring Systems for a complete products-and-services package.
6:31AM Asyst's Spartan Sorter technology selected by Hynix (ASYT) 8.28 : Co announces that it has received Spartan Sorter orders totaling $5 mln from Hynix Semiconductor, Hynix-ST Semiconductor, and an additional China-based semiconductor manufacturer.
6:17AM ASM Intl announces receipt of confirmation from Mellon that it has no support of other shareholders for the proposal to split the co (ASMI) 18.31 : Co announced last night that, in response to questions put to Mellon HBV Alternative Strategies by ASMI's legal advisers, Mellon confirmed that it has no support of other shareholders for its proposal that the co spins-off its back-end operations. ASMI felt that it should ask these questions following reports in the media stating that Mellon claims the support of shareholders who own over 30% in ASMI in its efforts to split the co. It follows from Mellon's response to these questions that these reports are untrue. ASMI believes that it is important that false rumors of this nature should not affect the trading of its shares. For this reason ASMI believes it is appropriate that Mellon's response to ASMI's questions seeking verification of these rumors are shared with the mkt. On the basis of information filed by Mellon with the SEC, the co believes that Mellon currently controls 3,731,235 shares, equal to approx 7% of the co's 53,489,824 shares outstanding.
10:02 am Intel (INTC)
21.54 +0.64: For its third quarter Intel topped the market's expectations in posting a profit of $0.21 per share (consensus $0.17), excluding items, on revenue of $8.7 billion (consensus $8.61 bln). Those results don't compare favorably to the year-ago period, but for a blue chip company in a state of transition like Intel is, that matters little to the market so long as the current trend and outlook connote a sense of progress. In that regard, Intel did what it had to do to keep its stock in the market's good graces, and in the case of our coverage, to remain a suggested holding in the Briefing.com Active Portfolio.
On a sequential basis, Intel's revenue was up 9.0% and its operating income increased 28.0%. Gross margins weren't that stellar at 49.1%, but at least they were consistent with the company's prior guidance. Its third quarter results were aided by the adoption of its core microarchitecture across the server, desktop and mobile PC lines. Intel noted that it had record mobile and server processor shipments, and that it believes it gained market share.
Importantly, Intel forecasted a pickup in the gross margin rate for the fourth quarter, which it pegged at 50%, plus or minus a couple of points. Its revenue guidance was set at $9.1-9.7 billion, with the midpoint being in line with the current consensus estimate of $9.43 billion, and it expects inventories to be slightly lower than they are now at the end of the fourth quarter. Its capex forecast was taken down, however, to a range of $5.7-5.9 billion from $6.2 billion, plus or minus $200 million. Not surprisingly, that news has been a negative for many of the chip equipment makers like Applied Materials (AMAT 18.27, -0.41) and Novellus Systems (NVLS 27.05, -1.52).
On its conference call, management sounded resolute in its belief that Intel has the right product roadmap to regain market share it lost to Adv. Micro Devices (AMD 24.90, +0.42) and to get gross margin trends headed higher. Its optimism is predicated on its cost-cutting activities and its leading edge manufacturing process technology. On the latter note, Intel said its 45 nanometer process development is on track for the second half of 2007.
In looking at Intel, its investment appeal is tied strongly to its 2007 prospects. Although the third quarter results are nothing to brag about on a historical basis, they substantiate the view that Intel has a grip on its business and is positioned to do much better in the year ahead on an operating basis so long as the global macro-economic picture doesn't deteriorate in significant fashion.
--Patrick J. O'Hare, Briefing.com
09:17 am Novellus (NVLS)
28.57: Shares in semiconductor manufacturing equipment maker Novellus Systems Inc. (NVLS) slipped around 4% in premarket trade after the company reported third quarter profits that beat expectations, but top line guidance that was lower than forecasts and underscored uncertainty in the industry.
The San Jose, Calif.-based company, which has a market cap of about $3.52 billion, reported third quarter earnings of $0.57 per share, $0.06 better than the Reuters Estimates consensus of $0.51 thanks to contained expenses and improved gross margins. Revenues rose 8.3% year over year to $444 million versus $447.1 million consensus. Novellus reported shipments for the period of $414.2 million versus previous guidance of $410 million to $420 million.
Company executives said the fourth quarter is in line for some softening, although several major orders are expected by the first quarter of 2007. During a call with analysts, company executives said they see fourth quarter earnings per share of $0.49 to $0.53 versus $0.51 Reuters Estimates consensus. The company said it sees fourth quarter revenues of $415 million to $430 million versus $447.14 million consensus.
Shares in competitor Applied Materials (AMAT) fell as well late Tuesday as concern about the near-term prospects for the chip industry increased. Certainly already back in August when Novellus released its midquarter update, there were concerns that the chip equipment industry had reached the peak of its cycle.
--Christine Marie Nielsen, Briefing.com
09:00 am IBM (IBM)
86.95: IBM has been one of the top ten performing stocks in the Dow since July, gaining nearly 20%, and following its third quarter results, the upward momentum may continue. Clear skies from Big Blue also set a positive tone for the rest of the software and services sector. The world's largest computer-services company's profits and sales bested analysts' expectations. On a per share basis, earnings of $1.45 per share, excluding non-recurring items, came in ten cents above forecasts.
Profits rose 47% to $2.2 bln, while currency-adjusted sales rose 5.1% to $22.6 bln, bolstered by software acquisition and sales of mainframes and computer chips. Flush corporate balance sheets are raising overall enterprise spending, which is a good thing for companies like IBM. Software revenues this quarter grew 7% to $4.4 bln, driven by its middleware brands, WebSphere, Lotus, and Tivoli, which connect systems software and applications. The unit gained 12% in sales to $3.4 bln, while operating systems revenues decreased 6% to $552 mln.
Global Services revenue rose 2% to $12.0 bln, ending the quarter with a total backlog of $109 bln. The Hardware segment benefited from server demand, resulting in an 8% rise in sales to $5.6 bln. Gross margins improved across the board with the exception of the Global Financing unit, bringing the total GM to 42.0%, up 140 basis points year/year
Overall, it was a solid showing from IBM driven by strength in software and hardware, while the service segment came in a bit light. We would expect to see some upward earnings revisions following the result, coupled with management expectations for a continued stable demand environment. While top line growth may still be hindered by its size, operational performance and shifting mix should drive earnings. Its strong seasonal bias in Q4, plus a compelling multiple of 13.6x, equals an attractive risk/reward profile.
--Kimberly DuBord, Briefing.com
08:03 am Motorola (MOT)
24.85: Given the recent rise in shares of Motorola, expectations were running high for the world's second largest handset maker into its third quarter result. The street was expecting a solid quarter, but what Motorola delivered was a weaker than expected top line, topped off by lighter Q4 guidance. Revenues rose 17% to $10.6 bln vs. $11.1 bln, including handset revenues of $7.0 bln - the slowest growth in five quarters. EPS came in-line. Handset shipments were also a bit light, rising 3% sequentially to 53.7 mln units. The softness in the top line resulted from a slowdown in carrier GSM capex and a pause in orders for iDEN phones ahead of the launch of a dual-mode handset at Sprint later this month.
Top line weakness overshadowed improved profitability, ongoing market share gains, and strong cash generation. Device margins continue to expand, widening 70 basis points sequentially to 11.9%. Further, the Connected Home Solutions segment demonstrated strong revenues and profitability of $812 mln and 7.8%, respectively. Nonetheless, after-hours weakness in the stock is likely to continue today as market participants focus on the top line softness, conservative guidance, and shipments.
While Q3 was certainly a disappointment, it has not changed our investment premise on the stock. We continue to believe the motormomentum will continue driven by the fact that global handset growth remains healthy, coupled with Motorola's refreshed product line up, particularly in the emerging markets, and ongoing cost reductions and operating efficiencies producing further operating leverage going forward. As such, we would recommend investors take advantage of any material weakness to add to or initiate positions. At the current levels, the stock remains compelling at 14x excluding net cash and options expense.
--Kimberly DuBord, Briefing.com
09:31 am Yahoo! (YHOO)
24.15: Yahoo on Tuesday reported a drop in third quarter earnings, as increased competition for online advertising and stock option costs weighed on results. The Sunnyvale-based company also issued disappointing guidance for the current quarter, but said its new Web search system was complete, offering hope for a turnaround and prompting shares sharply higher in pre-market activity.
For the latest quarter, Yahoo reported earnings of $158.5 million, or $0.11 per share, down from $253.8 million, or $0.17 per share. That was in line with analysts' expectations, according to Reuters Estimates. Third quarter revenue increased 19% to $1.58 billion from $1.33 billion last year. Excluding traffic acquisition costs, or the commissions Yahoo paid its advertising partners, revenue totaled $1.12 billion, slightly below the consensus estimate of $1.14 billion.
The letdown for the quarter was expected. Earlier in September, Yahoo announced that a slowdown in automotive and financial services advertising would constrain revenue to the low end of its earlier guidance.
Yahoo also provided a dimmed outlook for the current quarter, as it faces slowing growth rates and increasing competition from the likes of Google (GOOG), which is expected to report after the market close on Thursday, as well as sites such as MySpace and Facebook. The company forecasted fourth quarter revenue, excluding traffic acquisition costs, to be in a range of $1.15 to $1.27 billion. That compares with analysts' expectations for revenue of $1.3 billion.
While it is still uncertain whether Yahoo's troubles are company specific or are a sign of broader weakness in the online advertising market, we would not be committing new money at this time. Shares of the company, which have traded between $23.80 and $43.66 in the past 52-weeks, fell about 23% in the latest quarter, and are down nearly 40% since the beginning of the year.
(Disclosure: Briefing.com has a business relationship with Yahoo and Google)
--Richard Jahnke, Briefing.com
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