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Friday, January 16, 2009

TARP fund math

Banking is a business of spreads. A bank borrows money from depositors at one rate and loans money to creditors at a higher rate. They collect the spread. The Treasury loans money at 8%. The Fed has set interest rates at near zero. How can a bank loan money to anyone but the most risky of creditors with that kind of spread? They can't really. They have to invest in risky assets. There is a disincentive to lend implicit in these TARP loans.

Moral hazard is in high gear, my friends.

NAND contract significantly higher

NAND flash contract prices soar by up to 40% in 2H January, says DRAMeXchange
Josephine Lien, Taipei; Jessie Shen, DIGITIMES [Friday 16 January 2009]

Contract quotes for mainstream 8Gb and 4Gb multi-level cell (MLC) NAND flash jumped by up to 40% and 33%, respectively, in the second half of January, latest quotes gathered by DRAMeXchange show. Meanwhile, contract prices for the 16Gb MLC NAND flash segment grew 2-8%.

The price surge has appeared as a result of suppliers' production cutbacks and lower 8-inch fab output, according to the research firm. In addition, demand for restocking inventory before the Lunar New Year will contribute to price stabilization for the near term.

Most contract prices of single-level cell (SLC) parts, whose demand has decreased, also rose slightly in the second half of January, DRAMeXchange said.

En-Min Jow, chairman of NAND flash controller IC designer Phison Electronics, said that a rise in NAND flash pricing is expected to continue throughout the first half of February. The price hike will start slowing down in March, as chip suppliers begin ramping up production on a restored supply/demand balance, according to Jow.

Mainstream SLC NAND flash contract prices, 2H Jan 09 (US$)





High change

Low change

16Gb (2Gx8)






8Gb (1024Mx8)






4Gb (512Mx8)






Mainstream MLC NAND flash contract prices, 2H Jan 09 (US$)





High change

Low change

16Gb (2Gx8)






8Gb (1024Mx8)






4Gb (512Mx8)






Source: DRAMeXchange, compiled by Digitimes, January 2009

The Skew: Contract and spot prices are generally in the same range now. Previously contract was significantly below spot. The good news is spot prices haven't given back their gains since jolting higher a couple of weeks ago. Production cutbacks should lead to higher NAND prices. Taiwan bailouts may quash a notional recovery as rejuvenated cash flow would likely lead to more production. Like Sandisk for IP royalty catalog though quarter is so bad I'm going to have to read about it through finger-covered eyes when they report.

LG Display (LPL)

Operating loss worse than their December 10th re-guide down. Panel prices dove 23% in Q4 on 5% shipment growth. Co expects panel shipments down mid single digits for 1Q:09. Believes the "worst in terms of earnings" occurred in December, though prices will continue to decline in 1Q. Capacity utilization, presently at 60%, will rise to the mid 90% range in 1Q. Capex spending intentions down by 50%.

The Skew: Despite the uncertain spending environment and their inability to predict sustainability of a recovery, they'll be running production back up next quarter. Analysts are calling for a Q3 recovery. If LG is running higher production into uncertain demand, the company and/or analysts could easily be wrong about pricing recovery. No edge but seems risky. More interested in this company as a look-through to consumer spending and channel inventories.

Intel (INTC) still expensive, still rigging margins

See link

ThinkEquity calls it the kitchen sink quarter and expects 2H09 margins to be 50-60%.

The Skew: Yes, 1Q:09 is intended to be the kitchen sink quarter. The trajectory of a recovery remains uncertain. The company is going to bomb pricing. The only thing keeping $30 Atom chips from the larger form factor notebook market is Intel's restrictive sales policies – they're impeding the price curve to try to keep pricing of Centrino 2 from tanking. Intel estimates are going to be about 50 cents for 2009 now – what do you want to pay for a company making 50 cents that hasn't grown in the last 4 years? Now what do you pay for that company if sales drop 30%? Is the answer really 28 * 2009 estimates? It shouldn't be. I'd say even at 20* you're overpaying and that's down 35% from here. Definitely not a buyer of Intel.

NPD December video game results

NPD released December video game sales information. Software grew 15% y/y, better than analyst expectations of roughly 5-10%. Activision (ATVI) remained the number one publisher despite Guitar Hero band kits costing more than consoles in some cases – they were up 7% y/y overall with Guitar Hero up 14% y/y on a higher ASP. Electronic Arts (ERTS) was up 11% y/y. THQ Interactive (THQI) was down 23%. Wii titles dominated the top selling list, though Nintendo software sales +37% y/y may be a bit below street estimates of +50%, according to Deutsche Bank. Nintendo (NTDOY) Wii dominated platform sales with 2.1 mil units, up 59% y/y but up only 5% m/m – Nintendo essentially doubled shipment rates in the last couple of months of 2008 – market share grew substantially to 46%. Xbox sold 1.4 mil units, up 14% y/y and Sony (SNE) PS3 sold 700k units, down 10% y/y.

The Skew: I'm surprised Guitar Hero's ASP held up as well as it did. I've been thinking tough year to year comps would make keeping the franchise going difficult. Layering new functionality and drums and microphones into the product allowed them to keep pricing strong. Despite the franchise's age, 42% of Guitar Hero sales were band kits. Nintendo may be showing some signs of slowing – industry hardware units sales accelerated in December yet Nintendo grew only 5% m/m. Activision should work toward ~$10.30 near-term.


Thursday, January 15, 2009

Intel (INTC) 4Q:2008 results

Intel reports in-line revenues, gross margins at the low end of their 55 +/- 2% forecast. We knew that, they preannounced twice.

Guidance is a little fuzzier than usual. They're planning for revenues around 7 billion. Putting that into typical Intel speak, that would be $6.7 - $7.3 billion, below the consensus of ~7.3 billion. Really this is a down 15% guide down, which is at the upper end of semiconductor industry guidance of down 15-25%. The lowest number I heard was $6.8 billion. The stand-out number from the guidance is gross margins in the low 40s. That's off the charts bad and frankly suspicious – one would think they could beat that number pretty easily. Clearly Intel is planning some price cuts.

Typically Intel bottoms out on large inventory charges which enable them to inflate gross margins as they sell previously written off inventory. I guess they're saving the charge for next quarter when they're planning for gross margins to bottom. Speaking of inventory, they're showing absolute inventory up 10% q/q on a revenue decline of roughly 20%. The lower gross margin guidance suggests they'll be throttling back manufacturing over the course of the quarter… and possibly implies a big inventory writedown. That's what they should do.

Intel's capex came in at $5.2 billion for the full year and guidance of flat to slightly down is better than the street's expectation of down 20%. Capital equipment companies exposed to Intel include: FORM, NVLS, ASML, AMAT, LRCX, COHU. There are probably more but those come to mind. That group is starved for positive news and Intel has one of the largest capital spending budgets in the world. Of course, my initial reaction to that number is it has to come down. They're spending as if revenues didn't just drop 30% for them in 6 months. Uh guys, it did.

Eye-balling this "full year spending" number they've never given before, 10.4 – 10.6 billion looks like its slightly higher than analyst models so there's some operating margin pressure.

Intel has the potential to be a reversal event – historically many bottoms and tops are set by Intel's quarterly report. That said, I would prefer to see the stock down off these numbers. We're getting close to $12 which is where I think picking away at a long position makes sense. Unfortunately, it doesn't look like we're going to get near-term capitulation in the name or the sector, which would make things a hell of a lot easier. It's never easy, is it.

No green lights from me here one way or the other. It's a lousy number. I still need to see a big inventory write-off and the stock at $12 to think about buying it.

Tech Roundup – January 15, 2009


PC Industry (various symbols)

From WSJ:


PC shipments world-wide dropped 0.4% in the fourth quarter from a year

earlier, the first year-to-year drop in six years, according to Interactive Data

Corp. Rival market-research firm Gartner offered a slightly more upbeat estimate

Wednesday, reporting that fourth-quarter shipments world-wide rose 1.1%.

PC sales in the U.S. were particularly weak, with shipments falling 3.5%,

according to IDC. Gartner said U.S. shipments dropped 10.1%.

The poor showing represents a "pretty dramatic drop" in the market compared

with the year-earlier quarter, when world-wide sales grew 15.5%, said IDC

analyst Loren Loverde. He said sales of netbooks -- laptop PCs that sell for

less than $500 -- were the market's single bright spot.

About five million of the small PCs were shipped in the fourth quarter, he

said, bringing the 2008 total to about 10 million. At the same time last year,

that market was "basically nonexistent," he added.

But netbooks are typically priced from $300 to $500 and carry low profit

margins, contributing to what Gartner described as a "record decline" in PC


Hewlett-Packard Co. remained the world's largest PC maker, increasing

shipments 3.1% as its global market share grew to 19.6% from 19% last year,

according to IDC.

But rival Dell Inc., the No. 2 PC maker saw its world-wide shipments drop

6.3%, IDC said.

The Skew: This all makes sense, right? Desktops are getting slammed. It was only last quarter that notebooks replaced desktops as the majority of new sales. Netbooks in the $300-500 price point are the fastest growing segment and showing significant unit growth at the expense of higher priced notebooks. Underlying trends like this coupled with a severe contraction in consumer spending has led to one of the weakest quarters on record for the industry. Intel guided down twice – no one should be shocked here.

Within the numbers, Acer is picking up a lot of unit share due to their successful Aspire One line of netbooks, Dell is losing significant share. As Dell added retail channels late last year, this is particularly ominous. HP held share. Apple gained share.

It is extremely likely that the March quarter, without the significant holiday spending catalyst, will be catastrophically bad for the entire industry from a historical perspective. Business conditions continue to deteriorate worldwide and consumer spending is still extremely reserved. I continue to think Dell is a short. On a relative basis, HPQ will outperform because they aggressively manage costs and because printer ink is the fattest margin product in technology which subsidizes marginal hardware profitability elsewhere.




Xilinx (XLNX)

Reports 458 mil revs, beating 440 mil consensus. Gross margins exceeded street estimates by half a point. Guide for decline of 15-25% in revs – 344-390 mil versus consensus of 410 mil. Gross margins are expected to be 61-63% versus street at 63.3.

The Skew: Consumer and auto down 12% q/q, data processing down 20% q/q, communications down 3% q/q, industrial flat due to defense up 20% q/q. Numbers are going to $.70ish for 09. Chart looks broken and dangling. No near-term catalysts. Doesn't sound good, does it? Some will pick on Altera (ALTR), who reports on January 27th. I suggest you ignore people telling you to trade Altera off Xilinx. It's a totally derivative idea. In fact, if there's a big move in Altera one way or the other I suggest you fade it because it's a bunch of cattle driving the move.


Apple Computer (AAPL)

Steve Jobs is taking a leave of absence until June.

The Skew: Steve says he recently became aware that his health problems are more complicated than he had thought. No comment about the quarter from the company but they've been pretty good about keeping Steve's health issues and the company's health issues separate. No edge here, I'm still not a doctor. I stumbled upon a commencement speech Steve gave at Stanford after being diagnosed with cancer. It won't make you any money but it might make you reflect a little.



More coming pre-opening. Check back.

Wednesday, January 14, 2009

Nortel exposed

A quick Nortel supplier table:

% of sales
to NT

AIRV 93.0%
BKHM 18.0%
AUDC 17.0%
AVNX 13.0%
AMCC 7.8%
TTIL 6.3%
RSYS 5.6%
FLEX 3.5%

Courtesy: Connexiti.

Clues from 5N Plus conference call

Last quarter, First Solar (FSLR) was 75% of sales of 14 million (Canadian). This quarter, First Solar (FSLR) was 78% of sales of 18 million. So sales to FSLR were up 3 mil, or roughly 22%. First Solar consensus estimate for this quarter is up 17.5% Q/Q. Backlog at 5N Plus was 54 mil, which is where it was last quarter, though they referred to it as "up 19 mil", which I don't understand. The notes I have say it was 54 mil last quarter too. Backlog for 12 months has the same mix as the rest of the business -- if backlog is flat q/q, it indicates the moving average of First Solar's orders isn't changing, which it should be as they've got hypergrowth and its expected to continue.

They see no need to add new capacity having completed an addition recently. They referred to having adequate capacity for "growth, if any", which struck me as a warning. As they didn't give specific guidance for next quarter, there's no silver platter here of information. Margins moderated somewhat. They're slowing capacity additions. They're seeing some softness and starting to wonder if there will be growth.

First Solar's revenue ramp for next year is modeled to be pretty strong (100% y/y growth in Q1, levels out at 40% y/y in Q4) which doesn't seem consistent with this suppliers' tone. 5N Plus is a very small player and a very very small percentage of FSLR's sales and not necessarily directly indicative of a trend at their largest customer. But it might be.

Optisolar cuts half of workforce

This is what I mean about non-functional credit markets and the potential to derail solar projects.

-- California solar company slashes half its staff --
LOS ANGELES, Jan 13 (Reuters) - Solar power company OptiSolar
Inc has cut nearly 300 jobs, or half its work force, and halted
construction of a manufacturing plant because it could not secure
the funding it needed to expand, a spokesman said on Tuesday.
The privately held company, which made headlines last year
when it secured a deal to build a 550-megawatt solar power plant
in Central California for utility PG&E Corp , said its
biggest contract would not be affected by the move because
construction was not scheduled to begin until 2010.
OptiSolar spokesman Alan Bernheimer said the company had
eliminated 185 positions at its Hayward, California headquarters
and an additional 105 jobs in Sacramento, the location of a
planned manufacturing plant.
"It's on hold until we are able to attract financial support,"
Bernheimer said, adding that the company was applying for loan
guarantees from the U.S. Department of Energy.
The financial crisis and tight credit markets have put
expansion of the high-flying renewable energy industry on hold in
recent weeks, though many companies are encouraged by
President-elect Barack Obama's pledge to double alternative energy
production in three years as part of a plan to stimulate economic
"We'd like to take the Obama administration at their word,"
Bernheimer said. "We're sort of the poster child for what they're
talking about -- renewable energy, green jobs and U.S.-based
high-tech manufacturing."
Once it is completed, the Sacramento plant will be capable of
producing more than 600 MW of OptiSolar's thin film solar panels a
year and is expected to employ about 1,000 people, Bernheimer
Until that plant is able to begin production, OptiSolar is
relying on a smaller manufacturing facility in Hayward to fulfill
its current commitments to customers.
OptiSolar so-called thin film solar panels are made from
amorphous silicon and are cheaper to produce than traditional
crystalline silicon panels.
Its deal with PG&E, announced in August, comes as California
utilities are scrambling to meet the state's mandated goal of
producing 20 percent of their electricity from renewable sources
by 2010.
(Reporting by Nichola Groom; Editing by Phil Berlowitz)
((; +1-213-955-6755; Reuters

Tech Roundup – January 14, 2009


Linear Technology (LLTC)

Company guides down 15-20% for March quarter. Turns will have to pick up in February and March to get there.

The Skew: Not all that surprising as the fuzzy mean expectation seems to be for 20% declines to outlooks for semis. I had suggested stock was a short into the report in Monday's piece – I'd take it off prior to the conference call at 11:30am.


Semiconductors (many symbols)

Digitimes ran a series of articles yesterday about pickups in business at PCB manufacturers, foundry customers with handset focus, LCD panel orders. Citigroup defended their positive call on Taiwan Semiconductor, citing prior stock recoveries as correlated to utilization bottoms at foundries. Merrill Lynch points out that December monthly sales of the 13 Asian distributors they cover declined 7% m/m which is better than the historical average of down 15%. November was far worse than the historical average, too.

The Skew: A pickup from zero is probably what we're talking about. Business has been utterly dead. Semis are hand to mouth. Any kind of restocking is a good sign but OEM demand needs to hold in for this quarter and inventories need to show some sign of decrease. Citigroup is right, the semis start to trade better on utilization pickups. We're halfway through January – seems early to draw conclusions. As far as Merrill goes, I don't think a slightly less bad month after a horrendous one means much heading into seasonal weakness. I'm waiting for more information. It would be great to have a solid reason to buy these stocks. Qualcomm (QCOM) is my preferred long play in the handset semi space if you must – they have fat margins and monopolistic tendencies.


Yahoo (YHOO)

Carol Bartz confirmed as their new CEO.

The Skew: Bartz led a resurgence at Autodesk several years ago. She is likely to do significant cost cutting at Yahoo. A search deal with Microsoft is likely as a core tenet of that plan is massive layoffs. While the long-term impact of a Microsoft search deal is potentially extremely dilutive to the Yahoo brand, analysts and investors have been clamoring for it. Despite Bartz' protestation that Yahoo will make its own decisions, resistance to the Microsoft deal is futile. All your search are belong to us.


Adtran (ADTN)

UBS sees risk to the current quarter and the 2009 outlook. While current business is iffy, Adtran would be a disproportionate beneficiary of a broadband spending bill – 95% of their business is focused on the US broadband market.

The Skew: No hurry to own this but worth keeping on the radar for post-weakness buying.


Nortel (NT)

According to the Globe and Mail, the company may file for bankruptcy protection.

The Skew: They're not bankrupt yet? Er. Just checked the tape. Yes they are.


5N Plus (FPLSF)

Reported better Q2 results – 18.1 mil versus expectation of 16 mil.

The Skew: Company has correlated to First Solar (FSLR) in the past – FSLR is their largest customer. Conference call is at 10am. I want to say buy FSLR in front of the call but I suspect 5N Plus could have a murky outlook. FSLR guidance was contingent on a functioning credit market and I don't think that's what they've seen. More after the 5N call.



Tuesday, January 13, 2009

Nvidia (NVDA) much worse than previewed

As discussed here Friday and yesterday, Nvidia was giving off some poor body language at CES. Analysts were cautious, saying they'd probably miss their guidance by 10-15%. Whoops. They're guiding down a whopping 40-50% q/q. I suggested shorting it Friday (and yesterday). I was not thinking the number would be this horrendous. I'd let analysts hack at numbers and comment before covering.


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.




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.


Monday, January 12, 2009

That sucking sound you hear is Amtech's downgrade

This is more educational than actionable. Bottom line: sure is weak out there.

-- =DJ Tech Researcher Downgrades Big Names, Warns Of 'Ghost Town' --

By Ed Welsch


NEW YORK (Dow Jones)--A research firm specializing in technology stocks told
its clients Monday to avoid investing in some of the sector's biggest names.

In a series of notes describing the first half of 2009 as a "consumer ghost
town," Broadpoint AmTech Inc. downgraded ten technology stocks, including Inc. (AMZN), Dell Inc. (DELL) and Cisco Systems Inc. (CSCO).

"While we realize that investors are aware that 'it's bad out there,' we are
not sure they realize quite how bad," analyst Tim Boyd wrote in a research note.
"The consumer has put on the brakes hard in January."

Boyd and other Broadpoint analysts drew their conclusions after attending the
annual Consumer Electronics Show last week in Las Vegas. They reported that
nearly every one of the more than 40 companies they met with at the show were
"extremely bearish" in their near-term demand outlooks and said they were going
to make cuts to their work forces.

The firm said it downgraded stocks where it felt that demand was "far from the
bottom," and that face long-term trends that will hurt the value of the stocks
through the recession. The firm downgraded to sell from neutral Dell, Garmin
Ltd. (GRMN) and Nokia Corp. (NOK), and downgraded to neutral from buy Akamai
Technologies Inc. (AKAM), Cisco Systems, and Marvell Technology Group Ltd.

Broadpoint AmTech also downgraded online retailers and Blue Nile
Inc. (NILE) to sell from neutral, and Yahoo! Inc. (YHOO) and Inc.
(BIDZ) to neutral from buy, based on what it said were unrealistic expectations
and valuations.

Shares of all ten companies fell in recent trading, and underperformed the
Morgan Stanley Technology Index, which declined 2.1%. Online auction retailer saw the largest percentage drop among the companies Broadpoint AmTech
downgraded, declining 10.3% to $3.66 in recent trading.

Broadpoint AmTech also cut earnings forecasts already well below the Street's
consensus for 20 companies, including Google Inc. (GOOG), Hewlett-Packard Co.
(HPQ), Texas Instruments Inc. (TXN), Nuance Communications Inc. (NUAN), NVidia
Corp. (NVDA), Seagate Technology Inc. (STX), Broadcom Corp. (BRCM), Atheros
Communications Inc. (ATHR) and Motorola Inc. (MOT).

Another report Monday on the CES show, by Barclays Capital Research analyst
Tim Luke, corroborated the bearish view of the Broadpoint AmTech analysts. "We
found few key themes to inspire investors and consumers beyond well-previewed
focus on netbooks and smartphones," Luke said.

Even the few bright spots in the technology sector, smartphones and netbooks,
carried some troubling indications for other parts of the tech sector. Some of
the established cell phone companies are struggling to keep up with the pace of
innovation of the new smart-phone companies, Broadpoint AmTech analyst Mark
McKechnie said. His downgrade of Nokia to sell was based in part on the
company's "longer term issues in smart-phones."

And while netbooks were one of few hot products at the CES show, the analysts
said netbooks are having a deflationary effect on the rest of the PC market. The
trend toward netbooks and low-cost PCs will accelerate the declines in PC
average selling prices, the firm said, and hurt gross margins as the premiums on
full-sized PCs diminish.

Barclays analyst Ben Reitzes also pointed to the dark cloud behind the silver
lining of netbooks. "It seems that netbooks are cannibalizing notebooks, rather
than fully expanding the category as some have predicted," he said.

-By Ed Welsch, Dow Jones Newswires; 201-938-5244;

Click here to go to Dow Jones NewsPlus, a web front page of today's most
important business and market news, analysis and commentary: You can use
this link on the day this article is published and the following day.

(END) Dow Jones Newswires

01-12-09 1411ET

Copyright (c) 2009 Dow Jones & Company, Inc.- - 02 11 PM EST 01-12-09

Tech Horizon – Week of January 12, 2009


Earnings reports begin this week with mostly a trickle. As most semi companies have been scaling back expectations throughout the quarter, the near-term results won't be pretty or surprising. As far as I'm concerned, I think OEM sales/guidance and aggregate inventory levels will be the important metrics to be watching. If inventories continued to climb in a period of such intense weakness, it will dampen recovery. If OEM sales and guidance come down significantly, there could be further supply chain ripples – another quarter of down 20% q/q revenues. I think it's unlikely that June guidance will be on the table as visibility remains poor.

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Linear Technologies (LLTC) was one of the first semis to guide down significantly when they reported their September results. I would expect investors will pay too much attention to them as some kind of bellwether this time around. As Linear reported early in the supply chain cutbacks, it would not be surprising to see them make a further substantial cut to their outlook for the March quarter. I suspect Linear is a short into the number that should be covered on the report, but I don't have a position on either way.

Intel (INTC) reports Thursday. Expectations are very low – Jeffries presently has the most bearish forecast at down ~17% for next quarter. I'm guessing something more along the lines of $6.8 - $7.4 billion for guidance. I expect inventories rose quite a bit since last quarter, particularly on a days basis as the sales base is getting crushed. Typically Intel has a 6-10% rise in the fourth quarter relative to the third. This year revenues will be down 20% q/q. The troubling aspect of Intel's guidance is gross margins still hitting in the range despite two top line cuts since the quarter began. They have to be overproducing in order to have margins hold in that well. I expect next quarter's gross margin guidance to be substantially lower – perhaps down by 700 bps q/q – the street consensus is roughly down half that q/q. As Intel is not much of a growth story (they're the same size they were 3 years ago even before sales tanked), a big disappointment to margins will not go over well. Intel has substantial cash and is perceived as "safer" than a lot of other investments. As I've stated many times, I believe Intel is overvalued and does not deserve a multiple premium though it receives one. I expect the stock to trade under $12 over the course of the coming year, which is still down another 15% from its current price. I'd definitely stay away from the long side of the report. I have been and will continue to trade the stock from the short side.

Tech Roundup – January 12, 2009

Analysts returned from CES overwhelmingly cautious on semis, particularly the ones that offered guidance stronger than the rest of the industry. Both Marvell and Nvidia were cited more than once as potentially below guidance. Not coincidentally, Marvell and Nvidia have January quarter ends – when they gave their guidance, it didn't reflect the worsening environment seen in November and December. Nvidia guided to down 5% and analysts think down 15-20% is more likely. FBR cites price cuts by AMD in graphics processors as a catalyst for further weakness. Marvell guided down 8-13% and are tracking more like down 15%. UBS downgrades STM to sell from neutral, saying they believe the company will print a loss of 41 cents for 2009 versus consensus of 18 cents of profit.
FBR's summary is the most thorough in my opinion – he's been doing very good supply chain work. He has a half a dozen negative Broadcom datapoints. Customers must cancel orders with 8 weeks notice – so a lot of customers are getting stuck with parts they don't need – guidance could be down 15% q/q. They're losing share at Nokia to CSR. They're losing share in cable modems at Motorola to Texas Instruments. Qualcomm and Texas Instruments make the OMAP processors of choice which is making it hard for Broadcom to get traction in cell phone processors. They don't expect Broadcom to be in the iPhone Nano. Despite all of this, they like Broadcom for the breadth of their portfolio and because they can deliver Ethernet over rusty barbed wire.

The Skew: Nvidia is a short until right before they report or after they guide down. Marvell is not a stock I want to short. It's worth noting that part of STM's downgrade is due to share losses at Seagate in hard drive ICs to Marvell. Broadcom seems vulnerable to further downside pressure on lowered guidance – gross margins collapsed last quarter and sound like they're going a lot lower due to all these competitive situations. I'm short some Broadcom.


Citi says Taiwan Semiconductor (TSM) is seeing rush orders from some customers. From his note:

After months of utilization slipping to 35-40% in Jan 09 (not 30-35%), we are

beginning to hear of rush orders returning to TSMC, SPIL, and ASE from nVIDIA

(one of the top 5), Qualcomm (one of top 5), Altera, and Omni Vision from very

low levels.

The Skew: I wouldn't read much into an uptick from not much to a little. There's some guidance coming in the next couple of weeks and it will be instructive to hear companies talk about the environment. I think inventory levels are really important to get a picture of how an uptick in demand would play out. I'd hold the horses on this call.


Deutsche Bank met with Brightpoint (CELL), a major handset distributor, and came away positive, saying Brightpoint is seeing much better trends than the rest of the industry due to their smartphone exposure – smartphones require more customer care and software flashing which gives Brightpoint the opportunity to capture more margin.

The Skew: The stock is definitely acting much better than anything else in distribution and a rare positive call. Chart looks pretty good… might be worth trying a small speculative trade.


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