Everyone met with Nvidia and came away cautious. Weisel said while desktop remains very weak and while a preannouncement would not surprise, the prospects of a loss for the quarter may not be in the shares. Lehman said the quarter could be down 15-20%, worse than the company's projection of down 5%. Nvidia is Taiwan Semi's largest customer – 9% of last quarter's sales (Connexiti) – as discussed earlier, Taiwan Semi saw huge downticks in business. Nvidia is shortable here in my opinion. Best Buy same store sales came in down 6.5% which is towards the lower end of analyst expectations. They narrow their FY2009 forecast for earnings closer to the midpoint of prior guidance -- $2.30 - $2.90 goes to $2.50 - $2.70. Entertainment software sales were down 12.2% y/y – video games showed a single digit decline. Appliances were down 24.5%. Home office sales were up 6.5%, led by notebooks up 10-12% (hey, a positive PC datapoint!). Consumer electronics dropped 8.7% -- mobile phones and flat panel televisions grew but were offset by declines in digital cameras and mp3 players. GPS systems were up double digits in units but poor pricing led to lower year on year sales. Best Buy will see increased market share gains over the coming year as Circuit City dissolves. As business conditions improve, their pricing leverage will be more apparent without Circuit City's advertising circulars holding it down. I like Best Buy longer-term.
Friday, January 9, 2009
Tech Roundup Reload – January 9, 2009
Tech Roundup – January 9, 2009
Taiwan Semiconductor (TSM) released December sales – they were down 54.8% y/y. Directionally not surprising but the severity of the contraction in the Asian supply chain is profound. UMC had similarly bad sales trends to report the prior evening – down 45.5%. Memory prices were basically flat last night. Avian made a call yesterday afternoon negative on memory stocks, saying there were no indications that demand was improving despite the spot market rallies. LG Display's (LPL) CEO told a crowd of reporters at CES that LCD performance and price outlook is improving. "It seems like consumers are slowly recovering from the initial shock from the economic downturn. Some suppliers are experiencing a shortage of TV panels," he said. This echoes DisplaySearch's comments late last week and is not new information. PALM rocketed 35% yesterday after showing its newest phone running on its new Linux-based operating system. With a retractable qwerty keyboard, a full browser, and a multi-touch screen, Palm has a credible offering to fend off obscurity. The phone will not ship until later this year. Ballmer indicated he was open to a deal for Yahoo's search assets – this is the first indication he has shown that he is interested in any kind of transaction with Yahoo since walking away from the company several months ago. Yahoo is sucky yet stable. Shareholders and analysts want Yahoo to do something with Microsoft. Yahoo will be forced to engage in talks with Microsoft once again – expect speculation to continue to bubble and froth in the stock. I think Yahoo is a trading buy here. There may be a part 2 this morning. Check back before the opening.
Sony indicated better LCD sales than expectations. Hitachi said their LCD sales were worse and they'll miss their target but they're a bit player in the market.
Panasonic said they will slash spending on flat panel television manufacture by 1.5 billion (down 23%) but still intends to sell 15.5 million (up 50%) sets this year.
Tokyo Electron announced orders were down 65% in the December quarter. Semi orders dropped 55% -- solar and flat panel orders were down an astounding 98%.
While Palm's phone looks great, its likely to be expensive to manufacture for Palm – note that neither RIM nor Apple ships a phone with a touchscreen AND a keyboard. The Pre's bill of materials is likely to be the highest in the cell phone industry. Palm has significantly smaller scale and resources and will not get the same kind of operating leverage buying parts that Apple and Research in Motion get. Palm has not disclosed pricing but they have said they will price it competitively with the other offerings in the market – $200 is a paltry ASP relative to the bill of materials. Without revenue sharing agreements or substantial subsidies from Sprint, it is unlikely they will recoup much on the cost side. Apple was able to extract hefty fees from AT&T for exclusivity on the iPhone which ultimately led to leverage in negotiations with other carriers worldwide who were dying to latch onto Apple's hot streak. Palm, on the other hand, is a one-trick pony and this is their last chance to avoid the slaughterhouse. They will not have the same kind of negotiating leverage to extract substantial revenue from carriers in exchange for the right to sell the phone that Apple had. The rest of Palm's line looks pretty shoddy relative to the Pre and likely erodes as anticipation of the new phone builds.
Short interest in Palm shares is a dangerous 35% of the shares outstanding and the stock will probably not come in much as a result – pained short covering will prop it up on weakness. Palm stock is likely to remain volatile with an upward bias but Palm's future is anything but certain. The Pre should enjoy very brisk sales at $200 but the more important issue will be how much they're making… or losing… on each unit, and that won't be known for a while.
Thursday, January 8, 2009
Tech Roundup – January 8, 2009
NAND flash spot prices retreated slightly with 8gb and 16gb MLC trading off ~4%. DRAM contract prices for 1H January were posted with zero change from the previous 2 weeks. As Nanya and Samsung had publicly discussed price hikes, this is somewhat surprising. It's tough to push price hikes through with demand not there to back it up. ThinkEquity expects Intel's Q1 guidance to represent the bottom in downward revisions. He has a 54 cent estimate for 2009. Consensus is 71 cents. Jeffries believes Q1 guidance will be down 15-20% q/q and lowers his revenue estimate to $6.84 bil. His revenue estimate for the full year is 10% below the street and his 09 earnings estimate goes to 63 cents. Intel will shrink by 15-20% this year and the stock sports a P/E far in excess of 20* on even the most optimistic estimates. The stock belongs $10-12. Lenovo issued a profit warning. Shares plunged. Global PC demand is poor. Taiwan's UMC Corp, a major foundry for worldwide semiconductor production, announced sales dropped 45.5% y/y in December. This is somewhat worse than expectations but reflects the well-known contraction in semiconductor orders. Foundries are an important bogey to watch for an upturn as they'll see business improve when chip inventories get too low. No sign of that so far! EMC Corp preannounced revenues slightly above the street consensus. Non-GAAP EPS looks in-line. EMC is likely to outperform near-term relative to tech in general. Generally, online storage is becoming more pervasive as bandwidth speeds have grown. Pushes to so-called cloud computing by most major technology vendors (MSFT, GOOG, AAPL, IBM) will continue to bolster ongoing storage needs. EMC has been showing good cost controls and operating leverage under its present management, remains a potential acquisition target and probably ought to be a core holding. Microsoft (MSFT) has been aggressively cutting search deals. Yesterday it came to light that they had beaten Google (GOOG) for the Verizon search deal – beaten is always debatable with deals like this as they come with minimum payment guarantees – this one seems to be $550 mil over 5 years. Microsoft also won Dell's search business – several years ago, Google overpaid for the rights to default search settings on Dell computers. More to the point, Microsoft is making it more difficult for Google, regardless of the P&L implications to Microsoft. Google's market share in search significantly dwarfs Microsoft. FBR pulls the plug on some semicaps. His comments follow: We are downgrading the semiconductor manufacturing industry as our recent channel checks in Asia, as well as our semiconductor inventory analysis (illustrated inside this report), indicate the recovery in semiconductor manufacturing fundamentals will be slower than currently dialed into Street expectations. Although we were late in 2H08 in downgrading, and actually did not find it prudent to downgrade when stocks hit 52-week lows in November '08, we believe the recent enthusiasm in semiconductor manufacturing stocks and the associated 25% runup in SOX are premature and, thus, are using this occasion as an opportunity to finally downgrade. Our analysis indicates that the semi inventory refresh that typically occurs in the 2Q time frame (every year) will be muted this year since our analysis indicates that forward DOI (throughout the channel) will continue to increase from 3Q08 into 4Q08 as the rate of sell-through continues to track below the rate of sell-in. This is expected to drive forward DOI to above 40 days in 4Q08 and, thus, set a new five-year high. Consequently, the work-down in semi inventory will be longer than what has been experienced in the past few years and, thus, 2Q's inventory refresh will be a muted one. This is expected to push semi manufacturing utilization rates to historical lows in 1Q09. And, although the utilization rates could bottom in 1Q09 since they are at historical lows, it will take more than four quarters for any meaningful improvement to materialize, thus pushing out the rebound in equipment bookings to sometime in CY10 vs. 2H09. Other reasons behind a more muted inventory refresh in 2Q are lack of killer applications, fear of continued excess inventories, and short manufacturing lead times. The downside risk to stocks is considered limited to 20% to 30%; but we do not see any meaningful earnings power in CY10 that would otherwise help sustain the current rally. To that end, we expect semiconductor manufacturing stocks to give back the recent gains and remain in a trading range. We are downgrading AMAT, ASML, FORM, KLAC, TER, and WFR from Outperform to Market Perform and reducing TER's price target from $8 to $6; we reduce WFR's price target from $25 to $21. Inventory is still growing. Investors seem to be betting on a snapback V shaped recovery. It's not a friendly set-up for stock returns near-term. We'll start to get a sense of inventory levels over the next couple of weeks as companies report. Risk is being priced in, though, and that's good longer-term. Though I've been advocating playing some memory stocks long (SNDK, MU), I don't much care for semicaps at these levels. Memory is still an enormous portion of the semicap revenue base despite all the capacity addition cuts of late. Gamestop (GME) saw much better holiday sales on the back of better hardware availability (Wii was actually in inventory for a while this quarter, something that pretty much has never happened.) Nintendo shipped more product into the channel this year – almost double what they've had out there. It helped. Gamestop said margins will be somewhat lower as hardware skewed the revenue growth. The stock is a sale into the strength. Though the holidays held up, post-holidays there are no significant catalysts to drive the stock and there may be an air pocket of demand without holiday spending drivers. Prefer Nintendo (NTDOY) in the space -- they continue to take share.
Powerchip, a struggling Taiwanese DRAM manufacturer, submitted an aid request to the government. They remain opposed to consolidation which is in opposition to the government's preference. As Powerchip is on the brink of failing, its unlikely they will ultimately have much of a choice in the matter – expect them to be shotgun wedded to another player.
HONG KONG, Jan 8 (Reuters) - Lenovo Group <0992.HK>, the world's no. 4 personal computer vendor, said on Thursday it was likely to incur a material loss for the three months ended in December 2008 and would cut staff by about 11 percent to reduce costs. The potential loss was due to unprecedented global economic challenges reducing demand for personal computers, the company said in a filing to Hong Kong bourse. Lenovo also announced a plan to cut 2,500 employees worldwide, or 11 percent of its total workforce, as part of an effort to realise annual savings of $300 million for the year ending in March 2010. The company said it would incur a pre-tax restructuring charge of about $150 million for financial year 2008/09, which would be largely reflected in the fourth quarter of the year ending in March 2009.
Wednesday, January 7, 2009
Intel (INTC) revises 4Q:2008 forecast lower
Intel lowered its revenue forecast to 8.2 bil from the prior 8.7 - 9.3 bil and consensus of 8.8 bil. Despite the dramatically lower revenue, gross margins will remain in the previously stated range of 55 +/- 2% -- they must be overproducing like mad to keep margins up on that kind of shortfall. Expect significant inventory build at Intel when they report. As most of the rest of the known semi universe lowered a couple of times intra-quarter, Intel's guidance is somewhat expected. Despite that expectation, Intel trades at a relatively lofty valuation for a company that still hasn't eclipsed its 2005 annual sales results. This is not a growth stock and its quickly becoming a shrink stock and yet it continues to trade with a premium multiple. I don't think that can last in a more frugal economic environment.
I'm short some (you could probably tell).
Tech Roundup – January 7, 2009
Taiwan did an emergency interest rate cut of 50 bps following export data showing a 42% decline. Exports to China including Hong Kong were down 54%. Electronics shipments were down 43% y/y in December, their worst fall on record. China officially awarded 3G licenses to China Mobile for TD-SCDMA, China Telecom for CDMA2000 and China Unicom for WCDMA. All three fell on profit taking. Satyam's CEO resigned, confessing to fraud that has inflated reported profits for several years. "What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions", disclosed the now former chairman B. Ramalinga Raju in a letter to the board of directors. Last month, Satyam shares were pummeled when the Chairman tried to acquire family-owned businesses in utterly unrelated industries with company shares. This was an effort to bury the fraud according to Ragu's letter. The rally in memory stocks reflects anticipated order recovery and higher speculative spot prices. It remains to be seen whether companies can raise prices without demand following. Sandisk (SNDK) looks like its going to $13.80. Micron (MU) may have room up to $5 but I will be making sales today anyway. Baidu, Google and 17 other websites apologized to the Chinese people for failing to block pornography more effectively, the Xinhua news agency reported. The Ministry of Public Safety recently launched an investigation. The WSJ also ran a story about Baidu's shill search results and its likely longer-term effects on the credibility of the company as an information portal and an advertising partner. Baidu's share of the Chinese market is unsustainable at ~63% and vulnerable to market share losses. Baidu likely has substantially more downside. Apple (AAPL) continues to trade lower as others were as bored as I was with their product rollouts at Macworld. Furthermore, the media continues to speculate on Jobs' health. Hormone imbalances can be caused by a wide variety of factors. Yesterday the LA Times pointed out cancer is one of those factors. The stock continues to act very doggy. Rising NAND prices are negative cost input for Apple's Nano should the hikes stick.
There's more pummeling ahead – the stock was off 80% during regular session trading in India. Satyam has been dubbed "India's Enron" in a dozen reports so far this morning. As Enron created widespread nervousness about truth in corporate reporting, Satyam's competitors may find themselves losing business to IBM as their long-standing reputation as a pillar of industry will attract nervous customers in need of services.
Memory price increases spread to NAND flash. Contract pricing for the first half of January was revealed to be significantly higher than the prior month yet still below spot prices in most cases. MLC contract prices rose 15-20% in 8gb and 16gb. NAND spot continued its ascent with 8gb rising 20%, 16gb up 6% and 32gb up 4%. (prices are somewhat rounded and quotes vary as the spread is wide and the market disparate). A 1 year chart of MLC 8gb NAND spot prices is above to give some perspective. DRAM spot prices were also up in the mid to high single digits overnight.
UBS upgrades Micron buy from neutral on expectations that lower DRAM output across the industry will drive further price stability despite government bailout capital keeping underperforming capacity alive.
Tuesday, January 6, 2009
Rogers sees drop off in iPhone sales
TORONTO, Jan 6 (Reuters) - Shares of telecom and media I missed that earlier… probably because MacWorld made me sooo bored I could barely keep my eyes open.
group Rogers Communications Inc <RCIb.TO> fell almost 6 percent
on Tuesday after the company posted slumping iPhone sales and
flat postpaid wireless subscriber growth in the fourth quarter
and said its cable results are being hurt by a tough economy.
Rogers, which owns Canada's biggest wireless carrier, said
it added 199,000 net wireless subscribers in the traditionally
strong quarter ended Dec. 31, up from 183,000 a year earlier.
The company said it sold about 130,000 of Apple Inc's
<AAPL.O> iPhones in the quarter. Jonathan Allen, an analyst at
RBC Dominion Securities, said this was a "sharp drop" from
255,000 in the third quarter.
Blowups – January 6th, 2009
Standard Microsystems (SMSC) met revenue expectations of $84 mil for the current quarter and EPS were a dime better. Outlook of 45-51 mil and a loss of 40-50 cents are significantly below consensus of 76 mil of revenues and 15 cents of EPS. Standard Microsystems' main foundry partner is Taiwan Semiconductor (TSM) and their customers in excess of 5% are Yosun Industrial (TW.2403) at 24%, Avnet (AVT) 9% and Arrow Electronics (ARW) at 8% (Connexiti). F5 Networks (FFIV) preannounced lower revenues than prior guidance. The quarter will come in around $166 mil, prior guidance was $172-174 mil. North American business failed to close at the end of December, driving the shortfall. Flextronics is FFIV's primary contract manufacturer. Avnet (AVT), Ingram Micro (IM) and Tech Data (TECD) are their main distributors in North America (Connexiti). Microchip (MCHP) guides down 30% sequentially, which would be roughly 188 mil. The street is at 230 mil. EPS will be 23-26 cents versus the street at 32 cents. In the interest of timeliness, I'm going to post this and revise it afterward if necessary.
MacWorld basically over
They showed a new 17" Macbook, a bunch of software, said they'll be beta testing "iwork.com", an online office application that will compete with Google Docs.
They unveiled new tiered pricing for iTunes, $.69 for bad DRM songs, $.99 for DRM protected good songs and $1.29 for higher encoding DRM-free.
I think the iPhone can download music directly now.
More significantly, they did not refresh any of the hardware lines as expected nor did they show a new operating system revision.
The stock probably goes down.
(I'm short some.)