From Briefing.com: What goes up must come down: that is one of the immutable laws of physics and it is the law that has been applied to the highflying tech sector for the past two days despite a batch of supportive developments that has included cheery commentary from Fed Chairman Greenspan on economic prospects and a reassuring earnings report from Intel (INTC 25.31 +1.21).
Those items, arguably, should have been rallying points for the tech sector, but instead, they have served as catalysts for profit taking. That isn't entirely surprising to Briefing.com, which has had its reservations about there being an earnings season rally since the market continued to ramp right through the earnings warning period, emboldened by the lack of any real bombshells from corporate America. With that in mind, it can be said that the market had already discounted the good news.
Thus, despite the favorable developments of late, the tech sector is encountering some resistance as concerns about valuation and its over-extended posture have curbed buying interest. That is certainly understandable, and frankly, overdue, but it isn't disconcerting as there hasn't been a great deal of conviction on the part of sellers. In fact, it can be construed as a healthy development as the market needs to work off some of its excesses to encourage a new wave of sustained buying interest. With that in mind, the path of least resistance for the time being is likely to the downside.
As indicated in our previous comment, though, the earnings news thus far has been supportive in the sense that it has been good enough to feed the bullish mentality that better times do indeed lie ahead. Accordingly, market participants are expected to remain inclined to view interim weakness as a buying opportunity.
To be sure, the initial reaction to IBM's (IBM 86.74 +0.30) earnings report suggests there will be more interim weakness when trading begins on Thursday as IBM was down more than $2 in extended action on Wednesday. Big Blue reported Q2 (Jun) earnings of $0.98 per share, in line with the Reuters Research consensus of $0.98; meanwhile, revenues rose 10.1% year/year to $21.63 bln vs the $21.43 bln consensus. On its conference call, IBM said it's on track to meet analysts' average FY03 (Dec) revenue and profit estimates. That outlook isn't bad by any means, but with IBM up 18% from its March lows, the guidance isn't quite strong enough to excite an over-extended market.-- Patrick J. O'Hare, Briefing.com
5:49PM Wednesday After Hours Price levels are as of 4 pm EST: The Dow started off in positive territory, but quickly sank in the red and the indices traded in a tight range throughout the day. The market was in the process of digesting the releases of the morning and still looking ahead to the close of the market for more earnings reports. The larger reports are listed below. The Dow closed lower by more than 34 points and stands at 9049, the S&P 500 lost 6 points and closed at 994. S&P 500 futures were at 991, two points below fair value. NASDAQ 100 futures were down seven points from fair value at 1286.
E*TRADE (ET 9.37 -0.39) reported in-line EPS of $0.14 per share on revenues of $381 mln. Revenue rose 20.6% yr/yr and was better than the $356.8 mln consensus. ET now sees 2003 pro forma EPS of $0.52-$0.57 ($0.22-$0.27 GAAP), vs consensus of $0.49.
Kraft Foods (KFT 28.65 -2.15) Reported Q2 (Jun) earnings of $0.55 per share, $0.03 worse than the Reuters Research consensus of $0.58. Revenues rose 4.4% yr/yr to $7.84 bln and ahead of the $7.80 bln consensus. KFT attributes earnings shortfall to "acceleration in trade inventory reductions as well as the combined adverse effect of global economic weakness and higher price gaps." KFT issued full-year guidance and sees FY03 EPS of $2.00-$2.05 vs R.R. consensus of $2.13.
C.R. Bard ( BCR 68.41 +0.03), the seller of medical, surgical, diagnostic and patient care devices released results for Q2 (Jun), and had earnings of $0.94 per share, in line with the Reuters Research consensus. Revenues rose 11.6% yr/yr to $354.2 mln and were better than the $348.1 mln consensus.
Like the other brokerages, Raymond James Financial (RJF 36.73 +0.00) had good a solid quarter, earning $0.48 per share, $0.10 better than the Reuters Research consensus. Revenues rose 0.4% yr/yr to $389.8 mln and were above the $349.0 mln consensus estimate.
Advanced Micro (00C 7.32 +0.00) reported Q2 (Jun) loss of $0.54 per share, in line with the Reuters Research consensus. Revenues rose 7.5% yr/yr to $645.3 mln vs the $614.0 mln consensus. Co believes that Q3 sales will "increase." SanDisk (SNDK 50.40 +1.40) reported a blowout quarter with earnings of $0.52 per share, $0.21 better than the Reuters Research consensus. Revenues rose 83.7% year/year to $234.6 mln vs the $186.0 mln consensus.
Apple Computer (AAPL 20.26 +0.39) released earnings of $0.05 per share, $0.02 better than the Reuters Research consensus of $0.03. Revenues rose 8.1% yr/yr to $1.54 bln ahead of the $1.48 bln consensus. AAPL says it expects Q4 revenues to increase from this quarter's $1.545 bln, Q4 Reuters consensus is $1.552 bln, and the Company sees Q4 EPS to increase "slightly" from this quarters $0.05, current Q4 consensus is $0.06.
Progressive (PGR 73.20 +0.00) reported earnings of $1.22 per share, in line with the Reuters Research consensus estimate. Rrevenues rose 29.4% yr/yr to $2.92 bln and better than the $2.88 bln consensus.
For those of you who like earnings reports, get ready for another big day tomorrow. A full slate of companies will report, so be sure.
For more detail on these, and other after hours developments, be sure to visit Briefing.com's In Play, Earnings Calendar and Guidance pages. --Brian Bolan, Briefing.com
5:44PM IBM comments on pricing conditions (IBM) 86.74 +0.30: -- Update -- On Q2 (June) call, IBM says that pricing has begun to ease on a quarter/quarter basis, although it remains down on a year/year basis... IBM is down 2.19 to 84.55 in after hours.
5:30PM On call, IBM says software revenues could be up in double-digits in Q3 (IBM) 86.74 +0.30: -- Update --
5:22PM IBM experienced difficulty in its software division in Q2 (IBM) 86.74 +0.30: -- Update -- On call, IBM said that it continued to see customers delay orders in Q2 (June), and added that the average deal size declined year/year... IBM down 1.74 to 85.00 in after hours
4:53PM IBM reports in line; guides for Y03 (IBM) 86.74 +0.30: Reports Q2 (Jun) earnings of $0.98 per share, in line with the Reuters Research consensus of $0.98; revenues rose 10.1% year/year to $21.63 bln vs the $21.43 bln consensus. On conference call, IBM says it's on track to meet analysts' average FY03 (Dec) revenue and profit estimates. Current Reuters Research estimates for revenue and EPS are $88.23 bln and $4.32, respectively.
4:42PM IBM reaffirms analysts' average FY03 revenue and profit estimates (IBM) 88.74 +0.03: -- Update -- On conference call, IBM says it's on track to meet analysts' average FY03 (Dec) revenue and profit estimates... Current Reuters Research estimates for revenue and EPS are $88.23 bln and $4.32, respectively.
4:40PM Apple Computer beats, guides (AAPL) 19.87 +0.26: Reports Q3 (Jun) earnings of $0.05 per share, $0.02 better than the Reuters Research consensus of $0.03; revenues rose 8.1% year/year to $1.54 bln vs the $1.48 bln consensus. Company says it expects Q4 revenues to increase from this quarter's $1.545 bln, Q4 Reuters consensus is $1.552 bln, sees Q4 EPS to increase "slightly" from this quarters $0.05, current Q4 consensus is $0.06.
4:38PM QLGC trades off $1.40 post-earnings :
4:38PM QLogic beats by $0.02, ex items (QLGC) 51.35 -1.21: Reports Q1 (Jun) earnings of $0.35 per share, ex items, $0.02 better than the Reuters Research consensus of $0.33; revenues rose 27.6% year/year to $126.2 mln vs the $125.5 mln consensus.
4:29PM Pixelworks reports in line, ex items, guides Q3 revs in line with consensus (PXLW) 7.02 -0.11: Reports Q2 (Jun) earnings of $0.04 per share, excluding merger-related expenses and non-cash charges, in line with the Reuters Research consensus of $0.04; revenues rose 32.5% year/year to $32.6 mln vs the $32.3 mln consensus. Co also guides Q3 revenues of $34-36 mln vs estimate of $34.9 mln.
4:29PM Planar Systems beats, guides up (PLNR) 20.74 -0.67: Reports Q3 (Jun) earnings of $0.30 per share, $0.04 better than the Reuters Research consensus of $0.26; revenues rose 8.4% year/year to $62.9 mln vs the $59.5 mln consensus. Company sees Y03 revenues of approx $245 mln, consensus est $237 mln.
4:24PM SanDisk beats by $0.21 (SNDK) 48.70 -0.30: Reports Q2 (Jun) earnings of $0.52 per share, $0.21 better than the Reuters Research consensus of $0.31; revenues rose 83.7% year/year to $234.6 mln vs the $186.0 mln consensus.
4:23PM Advanced Micro reports in-line Q2 (AMD) 7.32 +0.04: Reports Q2 (Jun) loss of $0.54 per share, in line with the Reuters Research consensus of ($0.54); revenues rose 7.5% year/year to $645.3 mln vs the $614.0 mln consensus. Co believes that Q3 sales will "increase."
4:20PM SNDK prelim number looks blowout to upside; watch for action in LEXR :
4:14PM SanDisk files shelf offering covering $500 mln of common stock (SNDK) 48.70 -0.30:
Close Dow -34.38 at 9094.59, S&P -6.33 at 994.09, Nasdaq -5.24 at 1747.97: After a short-lived peek into positive territory at the open, the indices spent the entirety of the session stuck underwater and, with the exception of the first hour, trading in a relatively narrow range near their respective session lows... While there were plenty of reasons for the market to be pleased today, with multiple upgrades including the likes of Merrill Lynch (MER 53.85 +0.05) at JP Morgan and Whole Foods (WFMI 50.80 +2.18) at Adams Harkness, as well as the better-than-expected earnings by Intel (INTC 25.42 1.32), investors chose to book profits in an extension of yesterday's losses... The fact that the market-mover INTC's upside earnings did not produce a follow-through in the market is noteworthy and could be reflective of investors' apprehension regarding the market's overextended position... As a matter of fact, today's session was witness to more "selling-the-news" reactions as seen in the sell-off of JP Morgan (JPM 36.28 -1.01) following the $0.27 upside in its Q2 earnings...
As a result, the majority of sectors, including the influential semiconductor, software, disk drive, biotech, drug, financial, utility, and telecom groups spent the entirety of the session underwater... The latter two were on the defensive due to concerns over higher interest rates, which surfaced despite Chairman Greenspan's commitment to keeping interest rates low for as long as needed in his presentation to the Senate this morning... While Dr. Greenspan's presentation did not have much of an effect on the market, it's worth mentioning that he again reiterated his belief that the economy is improving and inflation is tame...
This morning's Consumer Price Index report, the most widely-cited inflation indicator, also spoke to that effect with its June reading of 0.2%, in-line with consensus, and flat reading excluding food and energy versus the consensus of 0.1%... Other economic reports included the Business Inventories report (at -0.2% versus flat consensus), as well as Industrial Priduction (at 0.1%) and Capacity Utilization (at 74.3%) reports, both of which checked in in-line with consensus... Elsewhere, the bond market closed along its session highs, with the 10-year note up 16/32 and its yield at 3.92%...NYSE Adv/Dec 1016/2248, Nasdaq Adv/Dec 1361/1810
3:26PM IBM Earnings Preview (IBM) 86.22 -0.22: IBM reports Q2 results tonight after the close, with Reuters Research consensus standing at EPS of $0.98 on $21.43 bln in sales. Bernstein expects the co to slightly exceed consensus on both the top- and bottom-line, yet while they think aggregate IT spending has stabilized, it remains relatively weak and organic growth may be sluggish holding currency constant; in addition, given that the outsourcing mkt's pipeline does not appear strong, they worry that (ex-PwCC) IBM's aggregate signings could be down 5% or more in 2003 YoY, and believes the biggest swing factors for investors to monitor are execution and profitability improvement in Services and Microelectronics. Goldman Sachs expects IBM to meet consensus with a bias to the upside, as currency could add some upside to reported revs; in addition, checks suggest that IBM's hardware unit probably had the strongest relative performance of any of its businesses in the June qtr.
2:56PM QLogic Earnings Preview (QLGC) 51.53 -1.03: QLGC reports after the close -- Reuters Research consensus est is $0.33 for EPS and $125.45 mln for revs... Legg Mason expects revenue to be in-line to slightly ahead of firm's estimates and sees SeptQ guidance cautiously positive, with forecasts of 2-5% sequential rev growth consistent with guidance from prior qtrs. Legg Mason continues to consider QLGC the front runner to win HP's future business providing adapters for Itanium II-based servers running the new version of HP-UX, and thinks may hear about this win as quarterly results are announced; would view this as a moderately positive catalyst. JP Morgan sees co beating firm's est of $0.33 EPS and $125 mln sales. That said, firm continues to rate stock a Neutral based on its high valuation and risks to co's SCSI biz. RBC also expects co to post high-end results, while remaining concerned about valuation... So generally speaking, market expecting good numbers from QLGC, but perception is that they are more than priced in. Looks like potential H-P relationship could be the wild card.
2:30PM EMC Corp cut to Buy at Pacific Crest (EMC) 10.08 -0.99: -- Update -- Pacific Crest downgrades to Buy from Strong Buy following Q2 results; while their turnaround thesis on EMC remains intact, they believe upside to the stock could be limited over the next several months due to uncertainties on the timing and magnitude of hardware margin expansion and the pending Legato acquisition. Target is $15.
11:43AM Silicon Storage downgraded at Adams Harkness (SSTI) 5.10 -0.30: Adams Harkness downgrades to Mkt Perform from Buy based on their belief that pricing in the NOR flash market remains quite challenging, as evidenced by INTC's commentary during its quarterly conference call last night; while they anticipate that SSTI will meet their Q2 ests, rev guidance into the Sept qtr may be more conservative than consensus due to the weak pricing environment and continued questionable end-market demand.
10:43AM Qualcomm chipset inventory poses risk -- SG Cowen 37.37 -0.43: -- Update -- SG Cowen says that Samsung and Motorola (50% of the CDMA mkt) reports last night reinforce firm's price pressure thesis. According to firm, handset sales were down nearly 30% in JunQ, which suggests Qualcomm's (QCOM) handset sales could go to 20 mln from 25 mln in MarQ. This suggests a 3 mln chipset build at time co is supposed to be depleting inventory.
Exar Corp (EXAR) 17.18 -0.26: Before the open, reported Q1 (Jun) earnings of $0.04 per share, $0.01 better than the Reuters Research consensus of $0.03; revenues rose 6.7% year/year to $16.0 mln vs the $14.7 mln consensus. Company sees Q2 EPS of $0.03, in line with consensus, sees revenues of $16 mln vs R.R. consensus estimate $15.5 mln.
Intersil (ISIL) 28.46 +0.87: WR Hambrecht commented on WLAN exit... From a stock price perspective, firm believes that decision to sell its WLAN biz to GlobespanVirata is a positive move from a stock price perspective, as it removes the overhang on stock stemming from an intense competitive environment in WLAN, while creating a pure analog play. Firm notes that it is surprised by the cheap valuation assigned to the biz of 1.5x CY03 sales (notes that last yr RFMD purchased Resonext at 5-8x CY03 sales). WR Hambrecht is suspending its rating and price target pending further detail on the transaction.
Monolithic (MOSY) 11.14 -1.36: AG Edwards downgraded to Hold from Buy based on valuation as well as weak 2H03 visibility in high volume consumer electronic sales.
PLX Tech (PLXT) 5.15 -0.41: After the close, reported Q2 (Jun) loss of $0.05 per share, excluding a $0.04 charge, $0.03 worse than the Reuters Research consensus of ($0.02); revenues rose 11.0% year/year to $8.7 mln vs the $8.6 mln consensus. Co. sees Q3 revenues in the range of $9.5-10.5 mln vs. R.R. consensus of $8.71.
RF Micro Device (RFMD) 6.61 -0.24: Thomas Weisel upgraded to Outperform from Peer Perform on view that fundamentals have realigned and gross margins have turned the corner.
Trikon (TRKN) 4.84 +0.78: Brean Murray upgraded to Buy from Hold, citing recent strength in bookings and a better activity level at TRKN's customers and prospective customers, as foundries pick up volume orders and improve process technologies; firm expects IFX to order several more tools in 2H03 and next year as its volume increases, and believes TRKN is in the later stages of trial production at TSM with its Orion low k CVD tool, and could receive orders before the end of the calendar year. Target is $8.
Double-digit gains since March have been based on expectations of stronger growth in the economy and corporate profits. Now that some evidence is validating such forecasts, investors are locking in profits rather bidding stocks higher. Stocks fell for a third straight day as International Business Machines said companies are delaying software purchases and Nokia repeated a forecast for a slide in network equipment sales this year. The S&P 500 slipped 12 points (-1.2%) to 981. Qualcomm and other makers of mobile phone equipment retreated, contributing to the steepest decline in the Nasdaq Composite since May 19. It fell 49 points (-2.9%) to 1698. The Nasdaq gets 42 percent of its value from computer- related shares. United Technologies, Caterpillar and Coca-Cola gained, limiting the decline in the DJIA, after reporting results that beat estimates or raising profit forecasts. The Dow lost 43 points (-0.5%) to 9050. S&P 500's members boosted second-quarter profits 6.9 percent, based on earnings announced so far and the average analyst forecasts compiled by Thomson Financial for the companies that haven't reported yet. Estimates have climbed as more companies report; last week, it stood at 5.2 percent. Growth may swell to 13 percent in the third period and 21 percent in the fourth, according to Thomson Financial. About a third of S&P 500 companies will have reported earnings by the end of this week.
Strong Sectors: managed care, machinery, gold, oil driller
Top Stories . . . Filings for jobless benefits fell more than expected last week, reflecting the government's accounting for seasonal factory closings rather than a slowing in the pace of job cuts, the government said.
U.S. housing starts rose more than forecast last month to the highest since January, a government report showed, as record-low mortgage rates stoked demand.
General Motors, the world's largest automaker by sales, said second-quarter profit fell 30 percent as lower demand for cars such as the Saturn L-Series and Buick Century forced it to cut production and raise rebates.
Coca-Cola, the world's largest soft-drink maker, said second-quarter profit rose 11 percent to $1.36 billion, or 55 cents a share. The company had been expected to earn 54 cents.
Quotes of Note . . . ``The market did a decent job of anticipating these earnings. You've just had a market run up very substantially. That's probably enough to cause the market to stall out.'' said David Fowler, president of Lincoln Equity Management LLC, which oversees $2 billion.
Kraft is ``the ultimate stock to avoid at the moment,'' said Alex Ingham, who oversees $1.5 billion of U.S. stocks at Aberdeen Asset Management. The company is ``not leveraged to an economic recovery and they have problems with their execution.''
Gurus . . . Last night, on the Kudlow-Cramer Show, Dan Niles of Lehman expressed some guarded optimism on the tech future, noting that the second-quarter ended OK, and Asia is coming back from SARS and the war. He is impressed with the widening range of Intel products, but concedes the cell phone recovery is still indistinct. On the hardware side, he continues to favor Hewlett-Packard.
On the bond side, Bill Gross, who runs the biggest bond fund, said June was probably the high water-mark of a 3-1/2 year bond rally, as interest rates at a 45-year low rekindle global growth, and stop inflation from slowing. He sees the 1.0% Fed funds rate persisting for a long time. The PIMCO bond fund increased its holdings of foreign Government debt to 11% in May, from 1.0% in April, and sold Treasuries and debt of Fannie Mae and Freddie Mac.
Of Note . . . The recession is officially over. The business cycle committee at the National Bureau of Economic Research has concluded that the recession that began in March 2001 ended in November 2001. The committee is considered the unofficial historian of recessions and expansions. The committee uses a variety of economic indicators to judge peaks and valleys of economic activity, including quarterly gross domestic product estimates and monthly data on jobs, income, sales and output.
Eco Speak . . . Initial claims for state unemployment benefits fell to a three-month low in the latest week, but Labor Department officials cautioned that seasonal adjustment factors make the data very hard to analyze. First-time claims over the past four weeks averaged 424,000 a week in the week ending July 12, down 3,500 from the 427,500 in the previous week, the government agency said Thursday. It's the lowest in three months. Initial claims in the most recent week dropped by 29,000 to 412,000. "This is more a reflection of seasonal factors," a Labor Department spokesman said.
Housing starts rose 3.7 percent to 1.803 million units in June from the prior month. In May, housing starts rose a revised 6.8 percent from the prior month, up from the original estimate of a 6.1 percent increase. Single family housing starts rose 5.3 percent in June, while multi-unit starts fell 4.3 percent in the month. Year-on-year, housing starts rose 5.5 percent in June. Starts rose in all regions of the country except the Midwest.
More Cockroaches . . . A federal regulator's Senate testimony is expected to show that Freddie Mac has much wider accounting problems than people realize, the Wall Street Journal reported in its online edition. Testimony is expected to show that the mortgage lender's problems could also include accounting related to many of the mortgage-backed securities it issues as well as "erroneous" accounting for the company's big in-house securities sales-and-trading operation. "Approximately one-half" of the company's mortgage-backed securities business could be affected.
Financials . . . Huntington Bancshares reported an a 33 percent increase in earnings from the same period last year, with net income of $97.4 million or 42 cents a share. Excluding special charges, the result was in line with analyst estimates of 37 cents a share. The bank said it gained $11.6 million from the sale of auto loans and had a $6.8 million pre-tax gain on its securities portfolio. The bank also had a combined $11.7 million in pre-tax charges related to mortgage servicing rights and a restructuring of its reserves.
Bank of New York reported net income of $295 million, or 39 cents a share, down from $361 million, or 50 cents a share in the year-earlier period. Excluding the impact of the Pershing acquisition, earnings were 42 cents a share, a penny above the average analyst forecast. Non-interest income rose 16 percent to $996 million while net interest income fell 6.7 percent to $407 million.
Commerce Banc was cut to Underweight at Lehman following stronger than expected results. The firm says a cocktail of strong growth, low and declining profitability, and high and rising rate risk with lower relative capitalization has the potential to produce a sobering slowdown in the "growth party" that CBH's above-peer valuation is based on; while it is difficult to know when the party could end. The firm thinks the recent 16% run-up in the stock fails to factor in this risk fully; target is $42.50.
Ambac Financial Group, which insures both government and business debt offerings, said low interest rates and continuing budget pressures lifted its net income 36 percent from year ago levels. The company reported second quarter net income of $162.6 million, or $1.48 per share, compared to $119.8 million, or $1.09 per share last year. The $1.48 per share number excludes securities losses of 16 cents per share, and 11 cents per share from the effects of refunding.
First Data posted a 12 percent rise in income from recurring operations to 353.8 million in the second quarter. Earnings per share rose 15 percent to 47 cents. Revenue rose 12 percent to $2.1 billion. "We remain confident that we will achieve full-year guidance," the company said.
Regions Financial said its mortgage and brokerage operations continued strong in the second quarter, driving net income up by 9 percent on a per share basis. The company also said it's raising its dividend 7 percent and buying back up to 12.6 million of its own shares. The company earned $164.8 million or 73 cents per, compared to $153.1 million, or 67 cents per share. The bank's latest quarterly earnings per share were 2 cents ahead of the analyst estimate.
Wachovia boosted its quarterly dividend 21 percent to 35 cents per share, driven in part by recent tax law changes. "Wachovia's board has signaled its confidence in our strong results, capital position and future prospects by increasing our common stock dividend for the third time in the past 11 months," the firm said.
Travelers Property Casualty reported net income of $441.2 million, or 44 cents a share, up from 33 cents a share in the year-earlier period, and above the forecast of 39 cents a share. Revenue rose 11 percent to $3.73 billion, ahead of the $3.52 billion expected by analysts. The insurer said the results were driven by strong underwriting performance, lower charges for prior year reserve development and investment gains versus losses a year ago, which were partially offset by higher weather-related catastrophe losses.
First Tennessee National reported earnings growth of 31 percent to $118.4 million, for an earnings per share of 90 cents, which slightly topped analyst expectations for 89 cents per share EPS. Noninterest income increased 63 percent to $548.7 million. Its First Horizon subsidiary benefited from the strength of the housing market as well as the current refinancing activity, in seeing pre-tax income increased 149 percent to $110.4 million. Total FTNC provision for loan losses increased to $27.6 million in second quarter 2003 compared to $23.3 million in second quarter 2002. This increase is primarily due to higher historical loss factors on commercial loans, resulting from the impact an extended period of slow economic growth has had on its customer base, coupled with rapid growth in retail loans.
Legg Mason reported earnings of $58.4 million, or 83 cents per share, for the June quarter, up from its year-ago equivalent profit of $49 million, or 71 cents per share, 6 cents ahead of the average estimate. Revenue jumped 8 percent to $423.3 million from $392.4 million in the same period a year earlier. Total assets under management rose 22 percent to $216.6 billion from the same time last year. The financial services firm said its asset management, particularly private capital management, and its private client business had strong results in the quarter, as did its fixed income capital markets business.
Union Planters reported earnings of $133.5 million, or 67 cents per diluted share, in line with analyst estimates. That marks a 6 percent rise in diluted share growth from the year-over-year quarter. Noninterest income of $213.6 million for the second quarter of 2003 increased 25.4 percent, boosted by mortgage banking revenue, which increased on the strength of origination volume, increased servicing revenue and loan sale gains. Nonperforming assets declined to $306.5 million, down $38.4 million, or 11.1 percent, from the same quarter last year.
Diversified . . . United Technologies reported earnings of $632 million, or $1.26 per share, up slightly from its year-ago profit of $624 million, or $1.23, and 3 cents ahead of the average estimate of analysts. Revenue rose 6 percent in the latest three months to $7.79 billion from $7.32 billion in the same period a year earlier. The firm said its global portfolio and cost-reduction efforts were able to offset the impact of an exceptionally weak commercial aviation market and generally poor economic conditions in the latest quarter. Looking ahead, the firm affirmed its previously disclosed outlook for earnings of $4.55 to $4.80 per share for the full year. Wall Street's current consensus estimate is for a fiscal 2003 profit of $4.63 per share. Earnings estimates run from $4.50 to $4.75 per share for the year.
Energy . . . Dominion reported 2nd quarter earnings of $0.84 per share, excluding an $0.08 charge, $0.01 better than the consensus of $0.83. Revenues rose 11.7% year/year to $2.60 billion versus the $2.44 billion consensus. The firm reaffirmed 2003 EPS of $4.60-4.80 versus consensus is $4.76.
Oil & Gas . . . Banc of America Securities cut its rating on ChevronTexaco to neutral from buy. "Several positive developments since early May... have led the stock to outperform its peers and may have stolen the thunder from its August 1 analyst meeting," the broker said
Banc of America upgraded BP Amoco to Buy from Neutral. The firm is saying concerns about the following factors are likely temporary: 1) recent political infighting in Russia prompting investor concern related to BP's proposed investment in TNK, 2) its buy-back program has reached its 2003 goal of $2.0 billion, and 3) technical factors, primarily a macro-oriented trade initiated by European investors. Target is $46.
Diamond Offshore reported 2nd quarter loss of $0.13 per share, $0.05 worse than the consensus of ($0.08). Revenues fell 13.1% year/year to $163.2 million versus the $158.0 million consensus.
Transocean warned that it would report a second-quarter net loss of 13 to 15 cents a share. Excluding non-recurring items, losses are expected to be between 5 cents and 7 cents a share, versus the average analyst forecast of a profit of a nickel a share. The oil services company said results were negatively affected by a riser separation incident on a deepwater drillship, unexpected downtime on other rigs and losses associated with a labor strike in Nigeria.
Transports . . . General Motors said that second-quarter profit fell from last year's levels as sales gave way amid further economic uncertainty and pricing pressures. The world's No. 1 automaker earned $901 million, or $1.58 a share, down from $1.3 billion, or $2.43 a share, a year ago. Sales were flat at $48.3 billion. The results did exceed Wall Street forecasts. Analysts expected the world's largest automaker to bring in a profit of $1.19 a share. The revenue target was $39.68 billion.
ExpressJet reported 2nd quarter earnings of $0.42 per share, $0.01 better than the consensus of $0.41. Revenues rose 18.8% year/year to $320.3 million versus the $328.5 million consensus.
Northwest Airlines reported net profits of $227 million, or $2.45 a share, versus a net loss of $1.08 a share in the year-earlier period. Excluding special items, such as government reimbursements, gains from asset sales and charges for the write down of aircraft, the loss for the quarter was $160 million, or $1.86 a share. Operating revenue fell 4.5 percent to $2.3 billion. The air carrier said results were negatively impacted by the Iraq campaign and the outbreak of sever acute respiratory syndrome, and added that it was still not seeing any "meaningful" improvement.
Delta Air Lines reported net income of $184 million, or $1.40 a share, versus a loss of $1.54 a share in the same period a year earlier. Excluding special items, such as government reimbursements, gains on the sale of investment and hedge related charges, the loss for the period was $1.95 a share. For the month of June, the air carrier recorded an operating profit of $31 million. Total operating revenue fell 4.8 percent to $3.31 billion. The company said it ended the quarter with $3 billion in cash.
Continental Airlines posted net income of $79 million, or $1.10 earnings per share, including a security fee reimbursement of $111 million, and a special charge of $8 million. The airline said consensus for the quarter, adjusted to include the security fee reimbursement and special charge, was 69 cents earnings per share. War in Iraq and Severe Acute Respiratory Syndrome (SARS) and higher year-over-year fuel costs impacted revenues. Second quarter passenger revenue was $2.0 billion, 1.7 percent lower than the same period last year. Continental's mainline load factor in the second quarter of 2003 increased 1.2 points to 76.5 percent.
Cooper Tire & Rubber reported net income of $13 million, or 17 cents a share, down from 52 cents a share in the year-earlier period, amid "very soft" tire demand and "very high" raw materials costs. The company also noted that light vehicle production was down and pricing pressures continued on all suppliers. Meanwhile, the results exceeded the average analyst forecast of 16 cents a share. Revenue rose 0.5 percent to $840 million, ahead of the $774.6 million expected by analysts. Looking ahead, the company said it was confident that business conditions were improving.
Delphi said sales declined 3.1 percent to $7.1 billion and net income declined to $88 million or 16 cents a per share vs. $220 million or 39 cents a share a year ago. Delphi said the results were in line with its targets. Looking ahead, it said: The company said it met unusual events in the second quarter, citing "an adverse legal judgment, timing of portfolio actions and general weakness in market demand and production volumes."
Staffing . . . Manpower said net income for the second quarter rose 14 percent to $29.1 million, or 37 cents per diluted share, on a 16 percent increase in revenues to $3 billion. In the U.S. it has not seen a "meaningful" upward economic turn, while French revenues rose 24.3 percent to $1.1 billion, a 0.6 percent increase on a constant currency basis. Manpower anticipates third quarter earnings per share will be between 42 and 46 cents.
Industrial Equipment . . . Caterpillar reported earnings of $399 million, or $1.15 per share, up significantly from its year-ago profit of $200 million, or 58 cents per share. The firm attributed the 99 percent year-over-year jump in profits to $107 million in improved revenue yield, a drop in core operating costs of $138 million, and favorable currency impact of $44 million. These developments more than offset $69 million in higher retiree-related costs, $22 million in costs related to changes in emissions standards, and an estimated $10 million profit reduction from an unfavorable sales mix. Analysts were looking for a profit of 66 cents per share in the June period. Caterpillar is saying sales and revenue jumped 12 percent in the second quarter to $5.93 billion from $5.29 billion in the same period a year earlier. The firm attributed the increase to favorable currency exchange rates, and higher machinery and engine volume. Looking ahead, the company sees earnings of $2.75 to $2.90 per share for the full year with overall sales and revenue growth of about 10 percent. Wall Street's current consensus estimate is for a profit of $2.30 per share for the full year.
Food & Beverage . . . Coca-Cola said modest pricing strength and expense management propelled its second quarter net earnings 11 percent ahead of year-ago levels. The company earned $1.36 billion, or 55 cents per share, compared to $1.22 billion, or 49 cents per share. Current quarter results include a reduction of 2 cents per share related to the previously announced streamlining initiatives. Coke posted second quarter net operating revenues of $5.69 billion in the latest quarter, versus $5.37 billion a year ago. Analysts had expected the Atlanta-based soft drinks giant to post earnings per share of 54 cents, on revenues of $5.76 billion.
Hershey Foods announced net income of $71.5 million, or 54 cents a share, up from $63.1 million, or 46 cents a share, in the year-ago period. Excluding charges, net income totaled $74 million, or 56 cents a share, compared with $64.8 million, or 47 cents a share, in the second quarter of 2002. First Call estimated earnings of 52 cents in the quarter. Consolidated sales for the second quarter totaled $849.1 million, up from $823.5 million in the year-ago quarter.
Altria said operating income decreased 9.4 percent to $4.2 billion, with results partially offset by higher operating results from international tobacco. Net revenue decreased 1.3 percent to $20.8 billion, primarily reflecting the impact of the Miller Brewing Company sale, it said. Per share, earnings decline 0.8 percent to $1.20, including $0.06 per share in charges related to the tobacco growers settlement announced on May 15, 2003 and initial charges for moving Philip Morris USA's headquarters to Richmond, VA. "Kraft's performance lagged our internal expectations, due to increased trade inventory reductions, as well as the combined adverse effect of global economic weakness and intense price competition," the company said. Looking ahead, it sees 2003 full-year diluted earnings per share of $4.50 to $4.60, including 8 cents of incurred and projected charges in 2003 for the tobacco growers settlement and relocation of Philip Morris USA's headquarters.
Retail . . . Sears posted a net profit of $1.04 a share in its second quarter, topping analysts' consensus estimate by 9 cents a share and its year-ago profit by 31 cents a share. Sales in the second quarter came to $7.8 billion, an increase of 0.9 percent from the comparable period in 2002. Sears went on to say that, while it sees same-store sales rising in the second half of 2003, it was lowering its full-year profit range to $4.80-$5 per share. The previous full-year profit forecast: $4.95 to $5.15 a share.
Sears reduces 2003 EPS outlook from $4.95-5.15 to $4.80-5.00 versus consensus is $4.78.
A.G. Edwards raised Home Depot (to a "buy" from a "hold" on belief that business trends at the home improvement retailer continue to accelerate and that comparisons will be easier in the second half of the year.
Healthcare . . . Cerner (healthcare information technology) reported earnings and revenue that topped expectations, and provided a better than anticipated outlook for the third quarter and for the full year. Daren Marhula from USB Piper Jaffray followed by upgrading the stock to "outperform" from "market perform," and raised his price target to $30.
United Health Group said ongoing market share gains and strong sales lifted its second quarter net income 35 percent to $439 million versus $325 million a year ago. Earnings per share rose 39 percent to 71 cents versus 51 cents. Analysts expect the company to earn 66 cents per share.
Medical Devices . . . Baxter International said that second-quarter net profit plunged to $38 million, or 6 cents per share, from $200 million, or 32 cents per share, in the year-ago period because of restructuring charges related to job cuts announced earlier this month.
Guidant reported earnings of 62 cents a share, topping consensus forecasts for 56 cents, on record sales. The company said sales rose 20 percent from a year ago to an all-time high $945 million in the second quarter. Guidant raised its 2003 sales outlook to $3.3 to $3.5 billion and now expects earnings in that period of 52 to 57 cents a share.
Drugs . . . Schering-Plough upgraded at Smith Barney to In-Line from Underperform, saying downside appears limited as the stock is reaching a theoretical valuation floor. The firm raised target to $18 from $16.
Biotech . . . Alteon said results from Phase 2b trials of ALT-711, a treatment for uncontrolled systolic hypertension, did not demonstrate statistical significance when compared to a placebo. While ALT-711 did demonstrate some efficacy against systolic hypertension and was safe and well tolerated, it did not meet its primary endpoint of the trial.
Alteon cut to Sell from Buy at WR Hambrecht.
SG Cowen upgraded Idec Pharma and lowered view on Biogen to Outperform to reflect its new view of the BGEN-IDPH combination. The firm noted that Biogen IDEC trades at just 28x 2003 EPS, a substantial discount to the group. Firm expects investor confidence in new company to build.
Genzyme was upgraded at RW Baird following stronger than expected results. The firm cited reinvigorated growth prospects and the fact that GENZ continues to trade at a discount to its peers, with a P/E of 36.6x versus the group average of 40x. Price target to $63 from $50.
Media . . . Merrill Lynch raised its rating on AOL Time Warner to buy overnight from a neutral and set a $24 price target on the stock. "Despite the stock's strong year-to-date performance (up 25 percent), helped by cable and Internet valuations, we believe AOL TW still offers an attractive risk/reward profile," the broker said.
Tribune Company said second quarter operating revenues increased 5 percent to $1.45 billion. Tribune's operating profit increased 7.7 percent to $370 million. Per share, earnings including a 10 cent gain rose to 67 cents vs. 33 cents a year ago. The 2002 second quarter results included a net non-operating loss of 19 cents. "Our second quarter results reflect solid momentum as we head into the second half of 2003," said CEO Dennis FitzSimons. "The advertising environment is slowly but steadily improving and Tribune's broadcasting and publishing groups are benefiting as a result."
Hotel & Leisure . . . Sabre Holdings reported earnings of $32.4 million, or 23 cents per share, down sharply from its year-ago equivalent profit of $82.7 million, or 57 cents per share, but 3 cents ahead of estimate. The firm said it saw a 'fairly healthy rebound' late in the quarter after dealing with the effects of the war in Iraq and the SARS illness in Asia. Revenue fell 5.5 percent in the latest three months to $507 million from $537 million in the same period a year earlier. Looking ahead, the company forecast adjusted earnings of 21 to 26 cents per share in the third quarter on revenue ranging from $500 million to $540 million, below current consensus estimate for a profit of 30 cents per share.
Royal Caribbean will take a 3rd quarter $0.04-$0.05 charge for an unscheduled outage for its Celebrity Millennium vessel. A problem with the ship's propulsion system forced the cancellation of a July 22nd 11-night Mediterranean cruise. The ship will be put into drydock for repairs. The financial impact to the company will come primarily from lost revenue. Affected passengers will be given a full refund on the cancelled cruise plus a voucher for a free future cruise. Additionally, travel agent commissions on the cancelled voyage will be protected and agents will be given a $50 per-stateroom re-booking fee. As a result of the charge analysts are trimming our 3rd quarter EPS estimate to $0.93 from $0.98, bringing full year projection down to $1.37 per share.
Marriott said income from continuing operations, net of taxes, for the quarter was $126 million, essentially flat with $127 million for the year ago quarter. It reported EPS of 52 cents per share, up 6 percent from the year-ago quarter and beating estimates of 47 cents. For the second quarter, REVPAR for comparable systemwide North American hotels decreased by 5.0 percent, while REVPAR for comparable company-operated North American properties decreased by 6.2 percent, driven by lower occupancy and lower average room rates.
Ameristar Casinos downgraded at Banc of America downgrades to Neutral based on valuation. The stock is near their $22 target. The firm sees no near-term catalysts to boost valuation, investors already expect the co to continue to beat 2003 guidance, top-line comps at St. Charles get tougher in 3rd quarter and repeal of Missouri's Loss Limit appears distant, a refinancing opportunity is 3 years away, dividends are unlikely, and ASCA is not a likely acquisition candidate.
Telecom . . . Nextel reported revenue and EBITDA of $2.6 billion and $1.0 billion, respectively, were just ahead of expectations. EBITDA margins were inline with expectations at 42.1% - the industry best. EPS $.27, $.03 better than consensus estimate. ARPU was $69, $1.50 better than estimates. The firm announced $1 billion notes offering to continue refinancing thesis. The firm raised 2003 EPS guidance to $1.00+ which is above all analyst expectations. The firm reported 591K net adds versus 390K estimate. Churn was 1.6%, 40bp better than estimates. Expect Wireless Services to report strong 2nd quarter net adds throughout the group.
Nextel reported 2nd quarter earnings of $0.27 per share which was $0.04 better than the consensus. Revenues rose 18.7% year/year to $2.56 billion versus the $2.46 billion consensus. For 2003, company is raising guidance to EPS of "$1.00 or more - up from at least $0.75." The full year consensus estimate is $0.93. Separately, NXTL announces a $1 billion senior notes offering. The company will use proceeds to redeem its 11.125% Series E exchangeable preferred stock and outstanding 10.65% Senior Redeemable Discount Notes due 2007.
Wednesday saw the launch of a Sprint PCS national advertising campaign directed at AT&T Wireless business customers, specifically outlining the differences between the two companies' next-generation networks. A full-page color ad appeared on page A7 of the WSJ, and Sprint has said that TV advertising is forthcoming. Among other things, the ad focused on the differences in call clarity, on-network coverage, and the significant lead that PCS has in wireless data speeds. This marks the first time that the wireless carriers naming their competition as inferior in advertising, and is another sign of a major push by both Sprint PCS and Verizon Wireless to attack the high-value customer base at AT&T Wireless. This competition for the business customer (which estimate comprises 40-45% of AT&T Wireless's customer base) is a major reason for our cautious stance on AT&T Wireless going into 2004.
While call clarity may be debatable, we believe the points about faster data speeds and footprint/pop coverage accurately reflect advantages of the Sprint PCS offering. Sprint has significantly more on-network pop coverage with CDMA than AT&T Wireless does with GSM, and can also offer far more off-network roaming than AT&T Wireless can today with its GSM offering. Estimate that today's CDMA networks cover ~80% of the US geography, while GSM in the US covers only about 25% of geography. This is a disadvantage for AT&T Wireless in trying to upgrade its base to 2.5G service, and one that will continue until the roaming companies have built out a substantial amount of GSM in mid-late 2004. Although expect that AT&T Wireless will report a strong 2nd quarter 2003 and 2nd half 2003, cautious about the company’s ability to maintain its stronghold on the valuable enterprise segment. As we move closer to 2004 investors will look past good 2003 numbers to the effects of portability in 2004, and could sell the stock off in anticipation of higher churn and some deterioration in the customer base.
IT Services . . . IBM reported 2nd quarter revenues $21.6 billion. EPS $0.97, up 9%, despite an unexpected shortfall in MicroElectronics, the $0.05 hit from lower pension income and an estimated $0.02 of dilution from PwCC. The restructuring benefits of more than $0.35/share this year are baked in. However, it now appears that MicroElectronics will lose as much, if not more, than in 2002. The disappointing $10.7 billion of contract signings in 2nd quarter caused the backlog to slip by 1% in 2nd quarter. But, with the fast start in 3rd quarter, analysts are still hopeful re 3-4% CC organic services growth in 2nd half. Now peg 2003 EPS at $4.35 (from $4.50); banking on a high-teens gain in 4th quarter. 2004 EPS at $5.20 from $5.40, still above Street. Stock at a small discount to S&P, but deserves a 15-20% premium.
Global Services: Contract signings came in at a $10.7 billion below guidance of $12-$13 billion. Global Services (now 49% of total revenues reflecting Services and Maintenance combined) grew 23% Year/Year (including revenues from PriceWaterhouseCoopers, which according to IBM has now been fully integrated with IBM’s Services operations) to $10.64 billion and was better than our $10.24 billion estimate. Services signings of $10.7 billion were below IBM’s guidance of $12 to $13 billion, although IBM seemed optimistic about the services signings it is seeing early in the September quarter.
Hardware: Intel servers and UNIX continue to perform well. Hardware revenue at 31% of total sales was down 1% Year/Year (down 6% in constant currency) to $6.6 billion, but was above $6.3 billion estimate. Microelectronics continued to be a drag on profitability with losses in this segment increasing from the first quarter owing to lower yields and some customer slippage – IBM no longer expects this segment to be profitable in 2003. Intel servers had another strong quarter with 23% Year/Year growth, while UNIX grew at a very strong 20% Year/Year rate. Mainframe revenues were down 5% Year/Year and MIPS declined 7%, although IBM is expecting greater momentum for the new T-Rex mainframe in 3rd quarter 2003/4th quarter 2003. “Shark” Storage continues to perform well, up 12% Year/Year.
Software: WebSphere continues to grow. Software revenues (16% of total) were up 6% Year/Year (down 2% in constant currency) to $3.47 billion and came in slightly better than our $3.34 billion estimate. Gross margins of about 86.2% also came in better than our 85.1% estimate. The WebSphere family grew 14% Year/Year and Tivoli grew a strong 9% Year/Year, while DB2 was up 1% and Lotus was down 3% Year/Year. IBM noted that customers continued to delay major purchases and that the average deal size declined Year/Year. Rational revenues grew 6% over the prior year with license revenue growth of 17% Year/Year.
Global Financing and Enterprise Investments. Global Financing revenues (3% of total) were down 19% Year/Year (24% in constant currency) to $0.7 billion due to declining asset base and interest rates. Enterprise Investment/Other revenues (1% of total) were up 6% Year/Year (down 1% in constant currency) to $0.2 billion.
IBM consulting bookings were up Quarter/Quarter. IBM’s feedback pertaining to demand trends in IT Outsourcing especially encouraging. Overall, consistent with Accenture’s feedback. Data points are positive for the integrators (ACN, Bearingpoint) as well as for the Outsourcing vendors (EDS, Computer Sciences).
IBM reported WebSphere family revs were up 6% at constant currency, inline with the 8% growth modelled for BEA Systems. This is another data point supporting view that the competitive environment, while still intense, has stabilized.
Unisys reported net income of $52.5 million, or 16 cents a share, up from 13 cents a share in the same period a year ago, and in line with the average analyst forecast. Revenue rose 5 percent to $1.43 billion, ahead of the $1.4 billion expected by analysts. The information technology services company said strength in its services and outsourcing businesses, as well as growth in its consulting and systems integration businesses, helped offset "significantly lower" pension income, which dropped to $8 million from $34 million. The company remains "comfortable" with full-year earnings projections of 77 to 82 cents.
Storage . . . QLogic upped to Neutral at CSFB based on view that firm's concerns about company's HDD controller business were misguided and that its initial investment thesis underestimated the diverse strengths of QLGC's model. The firm noted that it would not be surprised if stock sold off near-term given the lofty expectations that were built into the qtr, and remains somewhat cautious on absolute valuations across the sector. Firm's price target goes to $45 from $33.
EMC's 2nd quarter 2003 results were in line with its pre-announcement with year-over-year improvement in all of its product segments and gross margins. EMC noted that the IT and Capex environment has improved slightly with North America and UK showing some pick-up and Asia-Pacific looking strong while Europe and Japan remain soft -- overall, EMC noted that budgets remain tight but are being spent. EMC's guidance was in line with Street expectations but given the upside in 2nd quarter 2003 from its initial guidance (and the better than expected outlook at Intel), one might have expected a more positive outlook. EMC's 3rd quarter 2003 guidance was only in line with expectations with the mid-point of revenue range slightly below Street estimates -- this could be conservative given seasonal uncertainty in 3rd quarter. EMC's 2nd quarter results at $0.04 in EPS (vs. loss of $0.01) and revenues of $1.48 billion were in line with its preannouncement and above its original guidance of $0.03 in EPS on revenues of $1.425-$1.475 billion. Relative to expectations, better than expected services revenues, gross margins, and operating expense were slightly better than expecting contributing to the $0.01 EPS upside.
Network Equipment . . . Dresdner Kleinwort Wasserstein cut its rating on Nokia to hold from buy after Nokia's second quarter results and outlook for the third quarter. "We interpret the muted guidance for the second half as a tacit warning on handset margins and anticipate, in line with our longer term thesis, that a clear erosion will begin to transpire in the next few months as the impact of competition in China, CDMA-related start-up costs and FX movements begin to be felt."
Tollgrade was cut to Neutral from Outperform at Baird. The firm noted that guidance for 3rd quarter was conservative and the possibility of a Verizon strike creates additional uncertainties
Despite improving demand trends in China, Nokia is the third handset manufacturer to confirm view that excess inventory will be a drag on total year growth. Investors may likely be disappointed by the lowered annual expectations and weaker ASPs, although believe investors should look past the impact of the weaker US dollar. NOK's strong operational focus will continue to enable it to manage its bottom line and its share gains in CDMA are a threat to other vendors. Thesis remains that the wireless handset food chain should underperform other sectors through mid-fall given the inventory and ASP pressure.
Redback Networks reported revenues of $22 million (-25% Quarter/Quarter). $32 million used in 2nd quarter and another $14-15 million in 3rd quarter could bring the 3rd quarter balance to below $50 million. Despite a number of new deals for the SmartEdge router, we believe SE revs have been flat to down for several Quarter’s. Debt-for Equity swap and reverse split expected to file w/SEC in coming weeks. Estimate a reverse split of at least 1-for-50. RBAK currently trades at 1x cash per share of $0.38; assuming cash declines to $50 million in 3rd quarter, cash per share would be $0.27 before the effects of the recapitalization. Continue to believe competing against Cisco and Juniper for IP opportunities will be difficult. The edge router market is dominated by Cisco, which has over 80% market share. In addition, the combination of Juniper and Unisphere makes a solid #2 player with 10-15% share.
Nokia said earnings per share, pro forma, declined to 14 euro cents from 19 euro cents a year ago, in line with its targeted range. Nokia said second-quarter sales rose 1 percent to 7 billion euro. Looking ahead, Nokia warned it sees third quarter mobile phone sales "flat or slightly down year on year, largely due to a major depreciation of the US dollar, compared with the same period in 2002." In June, Nokia said it expected handset sales in the second quarter to come in at the low-end or below its own estimate for 4-12 percent growth, due to economic weakness, the weaker dollar and the impact of SARS on sales in China. Nokia set expectations for earnings per share of 13-16 euro cents, including a charge of 5-6 euro cents a share for restructuring charge in the infrastructure business. Analysts were expecting sales for the quarter to come in flat at 6.9 billion euro and up to 7.1 billion euro, with handset sales seen from 5.4-5.6 billion euro.
Nokia said it expects third quarter earnings per share on a pro forma basis in a range of 15-17 euro cents a share, down from 18 euro cents a year ago. Nokia affirmed it expects the global handset volume for the year to grow by around 10 percent for the industry from 405 million in 2002 and that it expects to outpace industry growth. In Nokia Networks, Nokia expects a year-on-year sales decline of 15 percent to 20 percent for the third quarter. "Given this sales outlook, Nokia Networks is expected to show a small pro forma operating loss in the third quarter."
Cisco said that a flaw in its router software could allow hackers to freeze its routers and halt the flow of network data through the devices. "Cisco routers and switches running Cisco IOS® software and configured to process Internet Protocol version 4 (IPv4) packets are vulnerable to a Denial of Service (DoS) attack. A rare sequence of crafted IPv4 packets sent directly to the device may cause the input interface to stop processing traffic once the input queue is full," Cisco said in an advisory on its Web site.
Semiconductor Equipment . . . Agilent announced a large 25 system 93K SOC Test order with the ASE Group. Believe A Semi Test bookings, modeled down Quarter/Quarter after a big surge in 2nd quarter (April) may in fact have a good chance of posting a gain Quarter/Quarter, despite normal slightly softer seasonality. Estimates are subcon utilization is high and demand visibility improving. Competitor Teradyne posted strong ST (and SOC) bookings offering positive commentary on 2nd half visibility. Analysts think 2nd half "swoon" for Agilent is less of a risk this year with broadening improvement in demand for Semi Test, key wireless SPG segments, and stabilizing T&M trends.
Semiconductors . . . Cypress Semiconductor earned pro forma $3.4 million, or 3 cents a share. That matched the consensus of analysts. Revenue rose 12 percent to $203 million from $181 million in the prior quarter, although it was basically flat with the year-earlier period.
DSP Group will report 2nd quarter on July 21st. See potential for upside to consensus 2nd quarter of $0.21 based on strength in 2.4GHz and shipments of new 5.8GHz products. Retail checks indicate new Panasonic 5.8GHz models began stocking in June. And, a new Motorola digital 2.4GHz multi-handset product line began stocking several weeks ago. Moreover, checks indicate sell-through is tracking well, bolstering our confidence for 2nd half. Expect new DECT (European cordless) and Bluetooth products to be released in 4th quarter 2003. Model assumes traction in new products is weighted towards 2nd half 2004, making EPS compares negative through 1st half 2004.
Needham upgraded Advanced Micro to Buy from Hold following stronger than expected results. The firm cited the following factors for their upgrade: they are impressed with the company's restructuring actions over the last few quarters, they have been positive on the potential for the co's new 64-bit microprocessor offerings for some time, they consider the increased exposure to flash memory to be positive, and a fair amount of the financial statement uncertainty surrounding the flash memory consolidation has now been removed. Target is $13.
AMD's 2nd quarter results were better than the lowered expectation following the June 25 pre-announcement. Revenues declined 9.7% Quarter over Quarter to $645 million, beating expectations of $615 million. The difference came from flash, where revenue declined 3.2% Quarter over Quarter versus estimate of 20.6%. AMD's cost reduction program bore fruit in the quarter, and AMD managed to reduce its costs to $769 million, better than its target of $800 million. Expect the company’s microprocessor shipments to increase sequentially by 6.6% to 7.0 million units in 3rd quarter and 10.7% to 7.7 million units in 4th quarter, mainly driven by seasonality as well as the launch of Athlon-64 processors for the desktop and notebook PC market in September. Expect AMD’s share in the microprocessor market in 3rd quarter to be similar to 2nd quarter at 15.3% and improve to 15.5% in 4th quarter. Although expect AMD’s flash market share to increase to 20% from 11% in 3rd quarter from the new JV, we expect oversupply to continue through 2003 and that flash pricing continues to come under pressure. However, expect AMD’s flash memory revenue to grow 5% to $221mn in 3rd quarter (excluding the $180 million from the new JV) as unit growth outpaces ASP decline. A number of concerns linger with AMD: (1) The level of inventory on the company's books rose for the fifth consecutive quarter in 2nd quarter 2003. This is a concern because AMD pla ns to launch the Athlon-64 in September, and think inventory will continue to increase at the end of 3rd quarter because of the launch. (2) Intel could get more aggressive in flash memory pricing in 2nd half 2003. Current valuation appears attractive at 1.1x book and 1.3x end-2003 book, and AMD is about to enter a new product cycle, prefer not to take a more positive view on the stock until we see traction with the Athlon-64 products. In addition, analysts forecast book value per share to erode to $5.6 at the end of 2004 from $6.6 at the end of 2nd quarter 2003.
Boxmakers . . . Apple beat consensus revenue/EPS, posting sales of $1.545 billion and EPS of $0.05. Revenue of $1.54 billion, up 8% year/year and 5% sequentially, was above the company’s guidance for flat sequential revenue from $1.47 billion in March. Revenue was based on stronger-thanexpected unit shipments of 771,000, up 8% sequentially but down 5% from the year-ago period. Apple’s systems ASP of $1,419 was down 8% from $1,546 last quarter (on units of 711,000) and down 1% from last year’s systems ASP of $1,436 (on total shipments of 808,000) based on a greater mix of lower-end iMac/iBook. In the U.S. education market, Apple’s unit sales grew 5% year/year (against IDC’s forecast for a 19% decline for the U.S. education market in 2nd quarter) based on continued strength in portables sales which came in at 47% of education units. The firm enters 4th quarter with proven momentum on iPODs, emerging ramp on G5 PowerMac desktops, rising retail footprint, and prospects for eventual availability on iTunes/Music Store on Windows platforms. However, OM’s are not likely to be much better than 1-2% and whether margins can normalize to much higher levels remains unclear, despite new initiatives. Balance sheet remains solid with $4.24 billion net cash; but shares currently trade at over 70X projected 2004 EPS.
Total iMacs shipped were 287,000, up seasonally by 12% from 256,000 in the March quarter, although revenues were flat sequentially at $301 million highlighting the mix shift toward lower-end SKUs such as the eMac. Overall iMac sales are being impacted from the ongoing shift toward mobility and desktop replacement, as units were down 24% from 378,000 units in the year-ago period which translated to a year-over-year revenue decline of 29% from $424 million in the year-ago period. Ahead of the anticipated G5 launch, Power Mac unit sales fell 15% sequentially to 133,000 units from the March quarter’s 156,000 units, contributing $234 million in revenue which was down 20% sequentially. Weakness in professional buying patterns (particularly in creative markets) resulting from adverse economic conditions as well as the price/performance gap with comparable Wintel systems continued to hamstring Power Mac sales, although Apple’s management of channel inventories ahead of the pending G5 launch constrained Apple’s supply capability. The key issues going forward for the Power Mac are whether the pending G5 launch will lead Wintel customers to defect to PowerPC/Mac OS and if the G5 can spark a replacement cycle in Apple’s installed base? A “switch” from Wintel/Lintel to Mac is unlikely given the perceived switching costs and high relative entry cost of G5-based hardware. Secondly, while Apple can see an upgrade cycle from professional users, there are risks associated with the ramp of a new processor, along with the prospect that customers for Apple’s other major product lines stall knowing that there is a G5 upgrade coming.
While Apple refused to disclose any specific details regarding the economics or profit profile of
iTunes, the company did disclose that over five million songs were downloaded from the iTunes Music Store during the June quarter and 6.5 million have been downloaded to date. Moreover, CFO Anderson indicated that the iTunes Music Store was “very close to breaking even” during its first quarter of release, highlighting potential leverage once it becomes available for the Windows market which is still expected by year end. Importantly, iPod sales were a record 304,000 units, up from 80,000 in the March quarter and 54,000 in the year-end period. Assuming a $400 ASP (Apple sells three SKUs at $299, $399 and $499), iPod revenues were an estimated $120 million, or roughly 8% of Apple’s total sales mix.
Software . . . Novell started with a Strong Buy at Roth. Price target $7.25. New management team has refocused the company on selling network solutions rather than products and has embraced Linux, and firm sees a significant growth opportunity in the Identity Management and Secure Web Services markets.
Siebel Systems was downgraded at RW Baird to Underperform from Neutra. The firm is saying the stock trades at a notable premium to the overall enterprise software group despite increasing competitive pressure, most notably from SAP. Target is $8.
JDA Software was upgraded at UBS to Buy from Neutral based on the following factors: 1) June qtr ests look achievable, 2) recent retail datapoints, 3) better sales force execution, and 4) better margin leverage due the company's recent restructuring; raises target to $15 from $10.
SAP reported earnings of $0.23 per share which was $0.04 better than the consensus of $0.19. Revenues rose 3.5% year/year to $1.84 billion versus the $1.88 billion consensus. Company reaffirmed 2003 EPS guidance of $3.45-3.60 Euros per share, or $0.97-1.01 versus consensus of $0.96. However, software licensing revenues came in at 431 million Euros, shy of analysts' expectations of 460 million Euros.
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