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Tuesday, January 13, 2009

Tech Roundup – January 13, 2009

Apple Computer (AAPL)
Barclays' Ben Reitzes is using $1.05 for the current quarter – consensus is 1.13. He thinks guidance will be well below the street at 80-90 cents, citing the company's typical conservatism and the cloudy economic environment. Citigroup's Rich Gardner reduces estimates, citing weaker iPhone shipments of <4mm versus last quarter's 6.9mm. Gardner says current quarter revenue could be "several hundred million dollars below consensus of $9.9 billion" and he too believes March guidance will be conservative and 15 cents below consensus. Gardner has a $132 price target on the stock.
The Skew: It wouldn't officially be a consumer recession without it affecting Apple, would it? Macbooks have showed deceleration since the initial product line refresh. iPods had a refresh, too, and sales never got going – they were flat at best and likely down slightly year over year in the December quarter. iPhone shortages seem to be a thing of the past – in fact, Apple is dumping them into more retail outlets (BBY, WMT) than ever before. Their product portfolio is quite impressive and brand loyalty remains high but Apple devices (with the exception of the iPhone) cost 2-3* comparable albeit less sexy offerings. I think the holidays likely benefitted Apple and without Santa driving sales in the March quarter Apple could see pronounced negative seasonality as bargain hunt and save have replaced borrow and spend as the consumer mantra. While I have no position in the stock, whenever I do the long-term chart I come up with a $60 stock price.


Intel Corporation (INTC)
Morgan Stanleys' Mark Lipacis thinks investors will be forced to reconsider their beliefs about the reliability of Intel's profitability. He thinks inventories will rise approximately 25 days to ~100 in their December results. He's expecting gross margins to decline 1300 bps between 3Q08 and 2Q09 due to underutilization and startup costs. I can't find his revenue estimate in the piece but here's a chart of his estimates (note they decelerate again next quarter and then stay down 25-30% y/y for most of the year).

He thinks the stock will trade $11-12 when the weakness of 1H09 becomes apparent following the quarterly report.
The Skew: I couldn't agree more with this call. For Intel to show gross margins of 55% +/-2% (probably 53%) this quarter on such dramatically lower revenue, they would have to be significantly overproducing, which would lead to higher inventories. Gross margins are likely to decline significantly next quarter. As previewed in the Tech Horizon piece this week, I too think Intel will trade closer to $12.


KLA Tencor (KLAC)

Company preannounces revenues 5% below consensus. Orders expectations are revised to down 25% from prior guidance of flat.
The Skew: No value to add here. Capacity additions are so 5 quarters ago. The semicap downturn has been going on a while but the memory spend went on unabated for several years. Perhaps after some consolidation in the DRAM industry and further capacity shutdowns a base will be formed. For now I don't see it on the horizon any time soon. These stocks should bleed and occasionally rip higher on notional recovery. I will tell you that the stocks will bottom before the news does. They always do.


January 14, 2009

Sony and Toshiba Shares Fall Sharply


New York Times


HONG KONG - Shares in Japan's leading electronics companies fell sharply on Tuesday amid reports that industry giants Sony and Toshiba will see an operating loss in the current financial year, as plummeting demand and the strength of the yen, erode sales.



A person with knowledge of the matter, speaking anonymously because the information is not public yet told Reuters that Sony may post an operating loss of about 100 billion yen, or $1.1 billion, in the 12 months to the end of March.


Sony declined to comment on the report, but its shares fell 7.7 percent by early afternoon as investors worried that Sony's third-quarter earnings, due January 29, could reflect worsening economic environment.


Among other things, the company has said it would detail the anticipated costs of a batch of cost reductions and job cuts it announced on Dec. 9 in an effort to cut costs by 100 billion yen a year.


If confirmed, the loss the would be the first full-year loss for the maker of the iconic Walkman and PlayStation 3 games console in 14 years.


"It's pretty much in line with my current forecast for the financial year, for a loss of 110 billion yen," said Kazuharu Miura, an analyst at Daiwa Institute of Research in Tokyo. "I think they may announce more restructuring this and next financiaal year, including many more job cuts.


Japanese media reported that Toshiba will also post what would be its first full-year loss in seven years because of worsening chip operations. Toshiba spokesman Keisuke Ohmori said the company has not revised its figures "at this time, despite the difficult environment.


Like Sony, Toshiba is due to report its performance for the three months to the end of December on January 29.


Toshiba shares fell 8.9 percent, while the overall Nikkei 225 index was

4.8 percent lower in Tokyo. Elsewhere in the sector, Canon fell 7.2 percent, Sanyo Electric 5.4 percent and Panasonic 7.8 percent.


Earnings reports and and Japanese trade data next week are expected to reflect the pain facing Japanese exporters: demand in the United States and Europe has been flagging for months as consumers cut back or delay spending on goods such as computer games, flat screen televisions and cars. And the yen remains strong compared to the dollar and euro, making Japanese goods more expensive for U.S. and European shoppers.


With the Japanese economy already in recession, companies have delivered a string of profit warnings in recent months, scaled back output and cut jobs. More announcements are widely expected, analysts and economists say.


Sony in October revised its operating profit forecast for the financial year to 200 billion yen, 58 percent lower than its earlier target, a number most analysts now believe is unachievable. On Dec. 9 Sony announced that it would cut 8,000 jobs - or 5 percent of workers at its electronics business - reduce investment and shut several plans in response to what it called the "sudden and rapid changes in the global economic environment."


The Skew: Sandisk (SNDK) is Toshiba's manufacturing partner and co-owner of the aforementioned losses. Spot and contract market prices for NAND have improved in the last couple of weeks – significantly – but last quarter's pricing was pretty miserable. Sandisk is an interesting stock on weakness. I prefer it around $9. Sony (SNE) has gone from the market leader in video games and portable music devices to last place. They're losing the TV crown to Samsung now, too, and they're somewhat overpriced relative to other offerings. The Vaio is priced like a Mac but uh it's just a pretty plastic case with the same guts as the rest of the PC market. I don't like Sony and see no reason to change now. (Disclosure: I had a horrible customer service experience with them and have been participating in a Sony boycott since 2000.)


Check back again before the opening for part 2.


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