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Tuesday, January 13, 2009

Tech Roundup Reloaded – January 13, 2009

EMC Corporation (EMC)

Jeffries contacts indicate orders below internal targets. While the company typically builds pipeline in Q4 which supports a seasonally slower Q1, pipeline was flat Q/Q in Q4. Conversion visibility remains low – realizing that pipeline will be trickier than in years' past. Cloud computing pushes, virtualization projects and federal spending bolstered Q4 results. He cuts his numbers from $3.5 billion and 21 cents to $3.3 billion and 18 cents for next quarter.

The Skew: I like management. I like offline storage in an increasingly internet-fueled IT environment. I don't think the stock is unreasonably priced. I think its more stable than a lot of other options. I like EMC on weakness.


First Solar (FSLR)

Citi downgrades from buy to neutral. Build pushouts in Germany (70% of revs), customers concerned about inventory. Expect multiple compression. Think 2H08 represents margin peak – historically multiples contract when margin does. Stock up on anticipated government stimulus. Citi believes incremental demand from bill will absorb 20% of excess supply in 09 and 35-40% in '10. Expect business to remain difficult until 2010.

The Skew: First Solar does large industrial solar contracts – multi-billion dollar plant build-outs. It's very tough to get funding presently. With oil prices under $40, the case for solar becomes less pressing and therefore easier to push out. Sure, we should be investing in the future and all, but times is hard, my friends. It's going to be very tough to push major projects through until real estate stabilizes, mortgage paper starts to move, the market improves, banks start to free up. That's a lot of variables that have nothing on the surface and everything to do with the future of widespread solar deployment. Some day I'm going to be really bullish on this group but it's not today and its probably down 50% from here.


Amazon (AMZN)

From Citi:

Our AMZN fundamentals call for Q4 is negative. Due to tough comps and to
the Severe Macro environment, we anticipate that Q4 will be one of Amazon's
sharpest organic revenue growth deceleration quarters. Vs. the extremely
impressive 30%+ organic growth levels of the last three quarters, we are
estimating a 16% rise in Q4, with upside being high teens/20%. And due to
deleverage in the Fulfilment expense line (due to three new distribution
centers) and to potentially significant Gross Margin pressure, we estimate
proforma operating margins could be down 100 bps + vs. the flat to 30 bps
gain of the prior three quarters.

Our Hold rating on AMZN is based on our belief that at current valuation levels,

investment risks are largely offset by investment positives. On the risks side,

we stress several points of caution: 1) Currency will have a material negative

impact on Amazon's reported Y/Y growth rates for the next several quarters; 2)

Amazon is NOT immune to the Severe Global Macro trends that have been

developing; and 3) The aggressive Q4 online price discounting we have

witnessed may have a structural component to it in the form of an increasingly

assertive multi-channel retail presence online. On the positives side: 1)

Amazon does have a relatively strong organic revenue outlook due to its

international exposure, secular growth opportunity & market share gains; 2)

Amazon should have long-term operating margin expansion potential; 3)

Amazon does maintain very high levels of product innovation – e.g. Amazon

Web Services and the Kindle (completely sold out thanks to Oprah?); and 4)

Amazon's very heavily variable (85%) cost structure should limit the extent of

deleverage in its model.

The Skew: Amazon is the most expensive retail stock in the universe. The stock belongs in the mid to high 30s and not above 50. It's a great company with a spectacular fulfillment system that is second to none but Kindle has added some major froth to the multiple. I'd like to see them sell Kindle to a consumer electronics company that could take it to the next level but that would be multiple suicide for their stock.




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