From Briefing.com: 4:32PM LSI Logic licenses ZSP400 technology to UTStarcom (LSI) 7.35 -0.05: LSI announces that UTSI has signed a licensing agreement for the LSI Logic open architecture ZSP400 digital signal processor core.
Close Dow -44.94 at 10371.47, S&P -4.70 at 1130.32, Nasdaq -12.35 at 1974.38: The equity market started with mild gains and managed to hold onto them for most of the day, but surrendered all of them - plus more - in late afternoon trading... A combination of factors - a breakdown in sector leadership, a lack of follow through interest from buyers, a technical breach for the Nasdaq (penetrating its intraday range and falling below its 50-day exponential moving average at 1976) - contributed to the finish at session lows... Conviction on the part of buyers was simply weak for the entirety of the advance (market internals were split, volume was extremely light), and traders opted to err on the side of caution and take profits from the slight uptick... Seven out of the last eight sessions have seen a narrowing of the range trade, which has not exactly increased the odds of a breakout... Additionally, the June 30 Iraq handover date and the impending Fed meeting (also on the same day) have curbed buying enthusiasm... Tech groups like semiconductor started with impressive gains, but quickly gave them back in the afternoon retreat... Without any real leadership to the upside, the rest of the market headed lower...
Biotech, financial, material, telecom, managed care, and homebuilding also posted noticeable losses and kept the indices in negative territory in the last hour...SOX -0.5, NYSE Adv/Dec 1579/1707, Nasdaq Adv/Dec 1316/1777
2:22PM Micron Technology (MU) 13.92 +0.23: Micron Technology is scheduled to publish Q3 results after the close on Wednesday. Reuters Research pegs Q3 consensus EPS of $0.07 on revenue of $1.132B (+54.5% Y/Y), and Q4 at $0.15 on $1.248B (+40.5% Y/Y).
Management indicated in recent investor conferences that PC shipments are demonstrating fairly seasonal patterns; down 4-6%, with notebook shipments trending to upper single digits to lower teens, and desktops down in the upper single digits. Seeing strong demand from networking and telecom customers. Pricing is stable, including within the flash market. Industry inventory of 2-3 weeks remains in favorable balance with demand.
PC manufacturers are holding firm to guidance of 11-16% Y/Y growth in box shipments for C04. Bits per box growth tracking to the 30-40% Y/Y growth estimated by customers for C04. Some customers are indicating 20-25% of capacity is expected to be allocated to DDR by Q4; others indicating 40-60%. DDR carries a 10-15% cost penalty due to larger die size and higher mask costs. Ultimate impact on company margins depends in part on supply/demand balance.
The company is seeing substantial growth in CMOS image sensors. Management forecast the industry to ship approximately 60-80MM digital still cameras and 160-220MM cell phones with CMOS-based sensors in 2004. CMOS image sensor wafer starts are tracking to expectations; had previously guided for 6-8% of wafer starts in Q3 and 10-15% in Q4.
The company is shipping into all but one cell phone manufacturer. Three megapixel products are shipping into digital still camera market; lower densities into all markets. Believe company is taking market share based on unit volume shipments. In discussions with several Japan-based manufacturers to transition from CCD- to CMOS-based image sensors.
Memory is a critical component of digital electronics including cell phones, handhelds, digital still cameras, digital video recorders, media players, computers, peripherals, routers, set-top boxes and video game consoles. The company is extending densities and broadening its product portfolio to address these diverse markets.
MU shares trade at a modest discount to peers and, based on our inverted EVA/DCF model, are priced for sustained upper teens revenue growth from F06 assuming 30% operating margin. Revenues are just beginning to ramp from over a dozen digital still camera design wins as well as a number of mobile phone design wins. Believe MU is positioned to materially improve margins over the coming quarters, driven by recovery in end markets, scale economies and migration to advance process technologies.--Ping Yu, Briefing.com
10:12AM Adobe Systems (ADBE) 42.89 +0.19: Adobe Systems posted Q2 results last week. The provider of document management digital imaging and digital video software published EPS of $0.44 on revenue of $410.085MM (+28.1% Y/Y) vs. consensus at $0.43 on $401.91MM.
Experienced strong demand across all major geographic markets. The Americas accounted for 44% of sales, Europe 33%, and Asia 23%. Backlog is higher than usual.
Creative professional segment revenue was $153.4MM (+63.7% Y/Y). Seeing an extended adoption cycle by customers for the new Creative Suite platform. Management expects revenue split to remain at approximately 3:1 in favor of premium Creative Suite products vs. standard version. Digital Imaging and video segment revenue was $100.3MM (+5.2% Y/Y).
The following table shows sales, gross margin and Y/Y variance by revenue segment. Segment Revenue ($ in MM) % Sales Y/Y Growth (%) Gross Margin (%) Y/Y Variance (bps) Products 402.553 98 28.1 94.2 67 Services and Support 7.532 2 25.6 46.2 (132) Total 410.085 100 17.1 93.4 65 Gross margin increased 65 bps Y/Y to 93.4% but declined Q/Q due to a one time litigation charge. Operating margin, excluding extraordinary items, increased 602 bps Y/Y to 34.6%.
Guided for Q3 EPS of $0.33-0.39 on $360-380MM (+12.8-19.1% Y/Y); gross margin of 93-94% and operating margin of 28-31%. Sales and marketing expense is expected to be 32-34% of sales; general and administrative 9-10%; and R&D 21-22%.
The following table shows price multiples and Y/Y growth rates for ADBE compared against industry comps. Company *P/SG Ratio **P/OPG Ratio P/S Y/Y Rev Growth (%) TTM 2004E 2005E TTM 2004E 2005E Adobe Systems (ADBE) 2.8 11.8 6.7 6.5 6.5 26.3 20.4 9.3 Macromedia (MACR) 2.1 26.0 4.3 3.8 3.4 9.7 20.0 12.7 Roxio (ROXI) 1.1 (9.0) 1.5 1.3 1.2 (17.4) 15.1 11.3 Software & Programming 2.8 34.3 5.1 n/a 7.0 n/a *P/SG Ratio: Normalized trailing 12 month (Price / Sales) / Growth ratio as of June 18, 2004. **P/OPG Ratio: Normalized trailing 12 month (Price / Operating Income) / Growth ratio as of June 18, 2004.
Strong overall performance but sales momentum is decelerating. Company is adding personnel to sustain momentum. Decrease in operating margin is due partly to annual salary increase and to new hires in R&D and sales and marketing. See limited downside risk near-term given the company's leadership position and strong balance sheet but also limited upside given premium valuation and near-term pressure on margins; risk/reward is shifting in favor of downside. Shares, based on our inverted EVA/DCF model, are priced for sustained lower 20% revenue growth from F06 assuming 35-36% operating margin.--Ping Yu, Briefing.com
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