INVESTMENT OPINION
Chips Pushed Down Further
In retrospect, it all seems so obvious. Front-end semiconductor equipment giant APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %> was stubbornly clinging to the thesis that demand for their capital equipment would remain steady for the rest of the quarter, in the face of growing reports from within the industry that orders were deteriorating at a rapid rate. Today's announcement that their current estimates of $0.98 EPS for the fiscal third quarter earnings were in jeopardy of falling through comes as no great surprise to anyone who has kept a close eye on the group these last few months. Ebullience over the need for capital expansion out to the end of the decade has given way to a deathwatch, waiting for who is going to report weakness in earnings next.
The short, sharp and shocking inventory correction that has driven many semiconductor manufacturers much closer to the threshold of break-even than they would have ever anticipated has management frightened. XILINX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XLNX)") else Response.Write("(NASDAQ: XLNX)") end if %> was not alone when it reported a dramatically weaker second half of June than it anticipated -- going into the end of the quarter, no one wanted any inventory. Orders fell through the floor and as a result management across the industry curtailed any capital spending. Outstanding requests for capital equipment were pushed out or canceled and Applied Materials was caught holding the bag.
Down $2 3/8 to $25 5/8 this morning, it would appear that the global giant has paid for its sins. Despite the low valuation based on trailing earnings, however, Applied is still on the high-end of the group if you look at working capital or sales. In fact, of the handful that trade at higher valuations, most have crumbled in the last few days as well. HELIX TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HELX)") else Response.Write("(NASDAQ: HELX)") end if %>, which supplies cryogenic vacuum pumps to Applied, was down $2 7/8 to $26 1/8 with Friday's profit warning still pressuring the stock. ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ETEC)") else Response.Write("(NASDAQ: ETEC)") end if %>, which caught fire when INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> purchased a stake, slumped $2 to $19, as well. Some of the cheaper companies perceived as competitors to Applied got whacked also: LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LRCX)") else Response.Write("(NASDAQ: LRCX)") end if %> slumped $2 1/4 to $23 1/2 and KLA INSTRUMENTS (NASDAQ; KLAC) was off $1 1/8 to $19 1/8.
SUPERCUTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CUTS)") else Response.Write("(NASDAQ: CUTS)") end if %> popped up $2 1/8 to $10 7/8 after REGIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RGIS)") else Response.Write("(NASDAQ: RGIS)") end if %> announced they were buying the value haircutter for about $150 million in stock. Investors were not quite as sanguine on Regis after the deal, as it was diluting itself to swallow up a very troubled chain. Regis was beaten down $4 to $29.
POSITRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: POSI)") else Response.Write("(NASDAQ: POSI)") end if %> was putting out some conflicting news today. The stock was up $1 to $5 3/8 on news that it did not meet the Nasdaq's tangible net worth requirements, but it was acquiring GE's Medical PET scanner operations for $25 million in cash and 10% of the company's outstanding stock.
RADISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RSYS)") else Response.Write("(NASDAQ: RSYS)") end if %> rose $2 1/8 to $23 7/8 after exploding a full six points on the open following its announcement that it would exceed current second quarter estimates. The manufacturer of embedded computer components and subsystems said a higher-than-anticipated gross margin was the reason for the surprise.
Medical device manufacturer STRYKER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STRY)") else Response.Write("(NASDAQ: STRY)") end if %> was rewarded for $1 5/8 to $22 5/8 when it reported earnings in line with consensus expectations of $0.25 EPS.
AUTODESK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADSK)") else Response.Write("(NASDAQ: ADSK)") end if %> moved $2 1/16 to $22 3/16 lower after Morgan Stanley downgraded the computer-aided design (CAD) firm to "neutral" from "outperform". The company relies heavily on its AutoCAD product and business has been slowing in this industry.
Last week's profit warnings still weigh heavily on GRC INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRH)") else Response.Write("(NYSE: GRH)") end if %>, slumping $3 1/8 to $20 7/8 this morning. The applications design consulting firm is down from the mid-30s on July 8th, two days before they announced that the fourth quarter may not reflect any improvement over the fiscal third quarter.
WABASH NATIONAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WNC)") else Response.Write("(NYSE: WNC)") end if %> reported earnings of only one penny per share this morning, ten cents below consensus expectations. The railroad car manufacturer screeched down $7/8 to $15 3/4 as a result, coming to a dead halt.
High-flying private managers of prisons are giving back gains today. WACKENHUT CORRECTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHC)") else Response.Write("(NYSE: WHC)") end if %> was mashed for $2 7/8 to $24 7/8 while CORRECTIONS CORP. OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CXC)") else Response.Write("(NYSE: CXC)") end if %> slid $1 1/8 to $29 1/8. We could find no news to explain this drop.
MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> finally joined its semiconductor manufacturing peers to trade at below 1.0 times sales today, slipping $2 to $19 3/8 after news about Applied Materials's upcoming quarterly disappointment broke.
Was it something they said? BOISE CASCADE OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOP)") else Response.Write("(NYSE: BOP)") end if %> fell $3 7/8 to $29 1/4 after reporting quarterly results in line with expectations. Initially doing well, the stock dropped like a stone towards the end of the conference call that started at 10:00 AM EDT.
CPC INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPC)") else Response.Write("(NYSE: CPC)") end if %> came in two cents light when it reported earnings of $1.04 EPS this morning. The maker of various food products was creamed for $ to $ this morning.
News that the chairman, president and chief executive officer (CEO) of GT BICYCLES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GTBX)") else Response.Write("(NASDAQ: GTBX)") end if %>, Richard Long, was killed in a traffic accident over the weekend sent the stock down $1 1/4 to $11 5/8.
A hedge fund manager apparently made a pretty compelling case for shorting ISIS PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ISIP)") else Response.Write("(NASDAQ: ISIP)") end if %> in this weekend's Barron's. The stock slumped $2 to $13 1/4 this morning. It was not all bad, though -- the same article sent POLYCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PLCM)") else Response.Write("(NASDAQ: PLCM)") end if %> up $7/8 to $8 1/8, however.
Aren't stocks supposed to rise in anticipation of earnings, bemused IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> followers asked this morning. The removable storage drive manufacturer slumped $3 to $23 1/4 after a shortseller made negative comments on CNBC's Squawk Box.
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