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From Briefing.com: 6:00PM Weekly Wrap: This was a week where bad news was bad news and good news was bad news. That's because bad news was treated in its rightful manner - with selling interest - whereas good news, specifically on the economy, was greeted with concern that it would prompt the Fed to raise rates sooner rather than later.

On Friday Richmond Fed President Broaddus helped assuage those concerns with some dovish commentary on inflation prospects and the Fed's willingness to remain patient before pulling the tightening trigger. With the weaker than expected industrial production, capacity utilization, and Univ. of Michigan consumer sentiment reports, the market looked as if it half-believed him.

We say half because the market ended the week on a mixed note, with the Nasdaq shedding six points and the Dow and S&P posting modest gains. Meanwhile, the Treasury market licked some of its rate-scare wounds, with the 10-yr note recouping nearly a half point to bring its yield down to 4.34% from a high of 4.40% on Thursday. For the week, however, the 10-yr yield rose 15 basis points and is now 46 basis points above the level it was trading at just before the release of the March employment report.

That report really got things rolling in terms of rate hike concerns, and when the retail sales and CPI reports for March checked in this week stronger than expected, it simply fanned the flames. As noted above, things settled down on the rate concern front in the latter part of the week, but overall, the specter of a higher interest rate environment clearly bothered the market.

In that regard, several rate-sensitive areas like the financial, utility, and homebuilding groups were among the biggest laggards, along with the semiconductor and telecom equipment groups, which were hit by valuation concerns and some uninspiring earnings reports from the likes of Intel (INTC) and Nokia (NOK).

At the same time, the blue chip averages outperformed the more volatile Nasdaq Composite and Russell 2000 by a wide margin, suggesting that investors were more risk averse this week in deference to concerns about higher rates. Those concerns, in turn, prompted a rotation into some more defensive-oriented groups like drug, biotech, and tobacco. Additionally, with worries about rising inflation contributing to the rate hike concerns, buying interest was also seen in the energy and basic materials sectors.

The dollar strengthened versus both the yen and the euro which, again, reflected the market's attention toward the prospect of a rising rate environment. That strength fueled a wave of profit taking in gold as the commodity dropped 4.5%, or $19.10, for the week to $401.60/oz.

By and large, the earnings reports this week were generally pretty solid. However, the threat of rising rates slowing the pace of earnings growth down the road ran interference with the good news. Next week, more than 500 companies are scheduled to release their results, including 11 Dow components, a G-7 meeting will be held, and there are a number of Fed speakers on the docket, including Alan Greenspan who will testify before the Senate Banking Committee and the Joint Economic Committee. Suffice it to say, there shouldn't be any shortage of trading catalysts.

In conclusion, Briefing.com would reiterate that we are maintaing our moderately bullish outlook for the stock market, but believe the time is right, in light of shifting interest rate expectations, for entertaining the idea of rotating funds into more defensive-oriented sectors and dividend paying companies. Further thoughts on the matter are provided in our Tying It Together column.-- Patrick J. O'Hare, Briefing.com

 
 Index    Started Week  Ended Week Change % Change YTD  
 DJIA         10442.03  10451.97    9.94   0.1 %   0 %  
 Nasdaq        2052.88   1995.74  -57.14  -2.8 %  -0.4 %  
 S&P 500       1139.32   1134.57   -4.75  -0.4 %   2.0 %  
 Russell 2000   597.88    583.37  -14.51  -2.4 %   4.8 % 

Close Dow +54.51 at 10451.97, S&P +5.77 at 1134.61, Nasdaq -6.43 at 1995.74: The stock market started on a sour note and steadily improved over the course of the day - never enough, however, to lift the Nasdaq out of negative territory... The Composite will thus finish 2.8% lower for the week as the index was pummeled by selling in tech... A slew of earnings reports from bellwether tech companies failed to impress investors and prompted selling across the board...
The same was true of today as March quarter results from IBM (IBM 92.31 -1.66), Nokia (NOK 14.60 -1.45), PMC Sierra (PMCS 15.66 -0.96), Siebel Systems (SEBL 11.39 -0.2), and Sun Microsystems (SUNW 4.26 -0.16) did nothing for the market... It wasn't so much the quality of earnings as the recognition that 'easy year/year comparisons' are a thing of the past... Companies will face much harder comparisons in the second half of the year, and thus growth rates will slow... That fact held back buying interest in tech and pushed the Nasdaq below the 2000 mark at the close... The blue chips fared much better with interest-rate sensitive issues that got slammed in the beginning of the week bouncing back today... Banking and REIT performed especially well, along with basic material...

Economic data were a mixed bag today with March Housing Starts and Building Permits surpassing market expectations, and March Industrial Production and Capacity Utilization falling short of consensus estimates (please see Briefing.com's Economic Calendar for specific details)... April Michigan Consumer Sentiment was also a disappointment with the preliminary reading declining to 93.2 (consensus of 97.0)...SOX -1.8, NYSE Adv/Dec 2409/892, Nasdaq Adv/Dec 1643/1533

2:23PM PMC-Sierra (PMCS) 15.65 -0.97: PMC-Sierra posted Q1 results after the close on Thursday. The designer of high-speed broadband communications and storage semiconductors and microprocessors reported EPS of $0.09 on revenue of $78.66MM (+42.0% Y/Y) vs. Reuters Research consensus at $0.04 on $78.38MM.

Book-to-bill was over 1.1 on improved demand for service provider related products including ADSL infrastructure applications in China and North America and non-DSL network access in metro optical transport applications.

Closed a number of design wins in the laser printer market for the microprocessors business. Seeing increased activity in EDGE routing, metro transport, multiservice switching, network access, and telematics, and deployment of ethernet over SONET.

Asia accounts for 51% of sales; North America 39%; Europe 9%; other 1%.

Gross margin increased 931 bps Y/Y to 69.8% on mix shift in favor of service provider products. Operating margin increased 3,619 bps Y/Y to 18.0% on tight expense control.

Guided for Q2 revenue of $82.59-84.95MM (+36.8-40.7% Y/Y). Reuters Research prints consensus at $0.05 on $83.59MM.

PMCS shares are, based on our inverted EVA/DCF model, priced for sustained upper 20% revenue growth assuming steady Y/Y improvement to 27% operating margin vs. management targeted operating model of 25% and historical peak of 38%. Implied growth falls to lower 20% assuming 35% operating margin.

The following table shows price multiples and Y/Y growth rates for PMCS compared against a broad group of peers and the semiconductor components group. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
PMC Sierra (PMCS) 6.8 (139.4) 10.3 8.2 6.6 22.8% 37.0% 24.9%
Agere (AGR) 1.9 (26.9) 2.5 2.4 2.1 0.3% 10.3% 14.4%
Applied Micro Circuits (AMCC) 13.1 2.1 16.8 13.6 7.8 (6.9%) 26.6% 74.3%
Broadcom (BRCM) 4.5 (22.7) 7.7 5.1 4.4 48.7% 50.4% 16.6%
Exar (EXAR) 8.0 1190.7 11.4 10.9 9.0 (4.6%) 0.7% 20.3%
Marvell Technology Group (MRVL) 3.3 63.3 7.3 5.2 4.2 62.3% 42.0% 22.2%
Transwitch (TXCC) 4.3 3.8 9.1 7.3 5.4 42.5% 24.7% 34.8%
Vitesse Semiconductor (VTSS) 6.6 (54.2) 7.5 5.7 4.2 (8.8%) 48.1% 35.2%
Intel (INTC 3.4 16.8 5.5 5.0 4.5 17.8% 28.7% 25.7%
Maxim Integrated Products (MXIM) 7.0 21.0 12.7 11.0 8.7 10.7% 23.5% 26.0%
Texas Instruments (TXN) 3.1 41.6 4.6 3.9 3.4 20.9% 17.5% 22.1%
Semiconductor Components 3.1 53.1 4.9 13.1%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 08, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 08, 2004.

Large, attractive end markets but shares are priced for high revenue growth and margin expansion, and trade at a premium to peers on a relative value basis. Downside risk greater than upside potential unless management accelerates top-line growth and improves operating margin beyond the low 30 to mid 30% range.--Ping Yu, Briefing.com

9:21AM IBM (IBM) 91.20 -2.77 After the close on Thursday, IBM published Q1 EPS of $0.93 on revenue of $22.250B (+10.9% Y/Y) vs. Reuters Research consensus at $0.93 on $21.929B.

Currency added 7 points to reported growth. Demand consistent with our view that the economic recovery continues to unfold and demand is improving across the globe. Achieved double-digit growth in emerging markets including Brazil, China, Eastern Europe and India. Americas revenue increased 6% Y/Y (4% adjusting for currency) to $9.1B (41% of sales). Europe/Middle East/Africa revenue increased 15% Y/Y (1% adjusting for currency) to $7.3B (33% of sales). Asia-Pacific revenue increased 16% (6% adjusting for currency) to $5.2B (23% of sales).

Signed services contracts totaling over $10B; ended the quarter with an estimated services backlog of $120B, including Strategic Outsourcing, Business Consulting Services, Integrated Technology Services and Maintenance. Made progress in zSeries servers and WebSphere middleware. Storage Systems revenues increased on strength in midrange disk and tape products. Personal Systems Group revenue increased 18% $2.8B, driven by mobile personal computers. eServer iSeries midrange server and Microelectronics revenues declined.

The following table shows sales, gross margin and Y/Y change in gross margin by revenue segment. Segment Revenue Y/Y Growth Gross Margin
$ in B % of Ttl Reported in Constant Currency Reported Y/Y Variance
Global Services 11.099 50% 9.1% 1% 24.5% (40)
Hardware 6.735 30% 16.0% 10% 26.7% 10
Software 3.466 16% 10.8% 3% 86.0% 140
Global Financing 0.662 3% (6.0%) (12%) 60.5% 160
Enterprise Investments 0.288 1% 13.2% 6% 39.5% 280
Total 22.250 100% 10.9% 3% 36.0% --
Gross margin declined 5 bps Y/Y to 36.0%. Operating margin increased 61 bps Y/Y to 9.7%.

Management indicated consensus is reasonable. Reuters Research prints consensus at $1.11 on $23.274B (+7.6% Y/Y). IBM shares are, based on our inverted EVA / DCF model, priced for sustained mid to upper teens revenue growth assuming steady Y/Y improvement to 15% operating margin.

Expectations priced into shares are materially above reported results but margins are expected to rise on improving demand environment for consulting services and operating results for the microelectronics business, and an expected mix shift in favor of higher margin software and hardware sales as enterprise technology spending continues to ramp.

The following table shows price multiples and Y/Y growth rates for IBM compared against a cross-section of competitors from the computer services, computer systems & peripherals, semiconductor and software & programming groups. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Revenue Growth
TTM 2004E 2005E TTM 2004E 2005E
International Business Machines (IBM) 1.2 12.9 1.7 1.7 1.6 9.7% 7.4% 6.3%
Hewlett-Packard (HPQ) 0.6 17.9 0.9 0.9 0.8 18.4% 7.5% 6.3%
Intel (INTC) 3.4 16.8 5.5 5.0 4.5 17.8% 14.0% 11.1%
Microsoft (MSFT) 4.0 18.7 7.9 7.6 7.1 11.3% 11.5% 7.4%
BEA Systems (BEAS) 2.6 22.9 4.9 4.4 4.0 8.4% 11.4% 11.6%
Oracle (ORCL) 3.5 12.0 6.3 6.2 5.8 5.2% 7.3% 7.2%
Accenture (ACN) 0.7 7.2 1.8 1.7 1.6 9.2% (0.1%) 9.7%
Computer Sciences (CSC) 0.4 8.9 0.6 0.6 0.5 22.6% 28.0% 6.7%
Electronic Data Systems (EDS) 0.4 (67.9) 0.4 0.5 0.5 16.8% (5.8%) 1.5%
Dell (DELL) 1.6 20.2 2.2 1.8 1.6 17.1% 17.4% 15.3%
Computer Systems & Peripherals 1.0 18.9 1.4 10.2%
Semiconductor Components 3.1 53.1 4.9 13.1%
Software & Programming 3.0 33.0 5.2 4.8%
Computer Services 1.2 18.9 1.7 6.4%
Blended 1.7 54.2 2.5 8.6%
*P/SG Ratio: Trailing 12 month (Price / Sales) / Growth ratio as of April 08, 2004.
**P/OPG Ratio: Trailing 12 month (Price / Operating Income) / Growth ratio as of April 08, 2004.

Shares trade at a discount to peers and blended average of sectors, suggesting modest upside for long-term holders on a relative value basis, provided management makes greater progress towards delivering on the expectations reflected in our model.--Ping Yu, Briefing.com

7:10AM Nokia reports, guides Q2 revenues below consensus (NOK) 16.05: Reports Q1 (Mar) earnings of $0.20 per share, converted from Euros, earnings actual was preannounced on April 6; revenues rose 10.7% year/year to $7.89 bln, this number was also preannouned Apr 6. Company sees Q2 EPS of $0.23-0.25, ex $0.07 charge, converted from Euros, on revenues of $8.37 bln, consensus $8.59 bln.

7:02AM California Micro raises MarQ outlook, plans 1.3 mln share offering (CAMD) 13.63: -- Update -- Co now expects MarQ revs of $15.6-$15.8 mln vs prior guidance of $14.7-$15.5 mln (Reuters consensus $15.1 mln); co now sees EPS of $0.06-0.07 vs former guidance of $0.04-0.06 (consensus $0.07). Fully diluted fiscal 2004 earnings are now estimated to be between $0.18 and $0.19 per share and revs at $59.3-$59.5 mln (consensus $0.16/$58.98 mln). Co also announced plans to offer 1.3 mln shares.

http://finance.yahoo.com/mp/q?tqnt