CONFERENCE CALLS
None
FOOL PLATE SPECIAL
Applied Materials's Earnings
Semiconductor capital equipment aficionados saw the proverbial other shoe drop last night when APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %> guided expectations down for the fourth time this year. Applied's management said in a conference call last night that based on orders, it expects about $0.48 EPS of earnings on $850 million in revenues in its fiscal fourth quarter. This is a far cry below the $0.73 EPS consensus estimate many had for the stock next quarter and implies the company will earn $3.21 EPS for fiscal 1996, up about 25% for 1996. Although not necessarily terrible, this is a far cry from the $4.00 EPS that many analysts were looking for this year and has negative implications for the future.
Semiconductor capital equipment spending hit a wall this summer as chip manufacturer after chip manufacturer began to realize the extent of the inventory correction and how broad-ranging it would be. Although calling a dramatic price break in all semiconductor product categories an "inventory correction" can be called into question, the net effect on the capital equipment concerns is the same -- orders have dried up as semiconductor manufacturers have trimmed back their expansion plans. Applied Materials, biggest and brightest among the group, has borne the brunt of these cuts. Estimates for next year, already hovering around $2.50 EPS with the low numbers being in the $1.30 EPS range, will probably be trimmed in the coming days.
Why are the capital equipment companies still getting clocked when many manufacturers are saying the inventory correction is over? Capital spending lags profits in the industry, meaning that even though prices have bottomed out, many semiconductor manufacturers still have at least two quarters of negative growth to endure, if not more. Some trailing-edge component-makers like Micron will probably never make as much money as they did last year ever again, unless they successfully leap about two product generations to get ahead of their already fast-moving competition.
With the entire market depressed, companies are battling for market share, something that ensures their long-term survival but costs them profits in the intermediate term. Orders for capital equipment will probably not return en masse until two quarters after the semiconductor industry at large begins to show some revenue growth, implying that another leg up for many of these companies will not occur until the calendar says June 1997. As usual, if you have a time horizon beyond the Street's six to twelve months, you have the opportunity to buy leading-edge companies at close to net working capital to minimize downside risk and you can just tuck them away for a few years. Of course, you can try to outsmart everyone else and wait until the next leg up starts, potentially missing out on all the fun. That is what the Street is trying to do and that is why every blip in the book-to-bill brings the analysts out of the dungeons, calling for happy days again. Fools would probably be best off being counter-cyclical -- buying during hysterical selling sessions when these companies are being valued at their liquid assets -- and then just waiting a few years.
News that Munich Reinsurance Co. would buy reinsurance firm AMERICAN RE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARN)") else Response.Write("(NYSE: ARN)") end if %> for $3.3 in cash sent shares of the acquiree up $4 1/4 to $62 5/8. Kohlberg Kravis Roberts (KKR) bought American Re for $1.4 billion in 1992.
RALCORP HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAH)") else Response.Write("(NYSE: RAH)") end if %> shareholders are chanting "Rah! Rah!" on news that the company will be selling its ready-to-eat Chex cereal and snack division to GENERAL MILLS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GIS)") else Response.Write("(NYSE: GIS)") end if %> for $570 million. Ralcorp shares advanced $2 to $22.
THE SPORTS AUTHORITY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> popped up $2 1/8 to $21 1/8 after beating estimates by two cents and being upped by Alex. Brown from "buy" to "strong buy."
BIOMATRIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BIOX)") else Response.Write("(NASDAQ: BIOX)") end if %> shares rocketed ahead $1 1/4 to $14 1/4 after the company posted second quarter earnings of $0.50 per share, compared with a loss of $0.18 in the year-ago quarter.
Shares of telecom concern WESTELL TECHNOLOGIES were lifted $2 1/4 to $35 1/4 when PACIFIC TELESIS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAC)") else Response.Write("(NYSE: PAC)") end if %> announced yesterday that it would be using Westell as its equipment vendor in phase one of just-launched cable modem and high-speed digital subscriber line field tests.
DELL COMPUTER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %> bested analyst estimates considerably last night, posting $1.05 (including a ten-cent charge), versus expectations of only $0.86, and sending shares up $4 1/2 to $61 1/8 this morning.
LERNOUT & HAUSPIE SPEECH PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LHSPF)") else Response.Write("(NASDAQ: LHSPF)") end if %> shares jumped $1 3/4 to $22 3/4 on earnings of $0.02 per share for its second quarter, compared with a loss of $0.54 in the year-ago quarter. The company was expected to lose $0.03.
Telephone and communications concern TELEPORT COMMUNICATIONS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCGI)") else Response.Write("(NASDAQ: TCGI)") end if %> surged $1 1/2 to $19 1/4 this morning, following Merrill Lynch's naming the company as a "Focus One" stock.
SILVER KING COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SKTV)") else Response.Write("(NASDAQ: SKTV)") end if %> beamed shares up $4 7/16 to $30 1/4 after announcing that they were adjusting the merger arrangements with SAVOY PICTURES ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPEI)") else Response.Write("(NASDAQ: SPEI)") end if %>, essentially sweetening the deal for Silver King shareholders.
Information technology product and service distributor MICROAGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MICA)") else Response.Write("(NASDAQ: MICA)") end if %> surged $1 1/4 to $15 1/2 after beating estimates for its third quarter by three cents, reporting $0.24 per share compared with $0.05 in the year-ago quarter.
Retailer SEARS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> popped up $1 3/8 to $45 after Goldman Sachs added the company to its "recommended" list, with a target price of $55.
ANCOR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ANCR)") else Response.Write("(NASDAQ: ANCR)") end if %> shares tumbled $2 3/8 to $13 5/8 after the company reported a second-quarter loss of $0.10 per share on 88% higher revenues, versus a loss of $.012 in the year-ago quarter. Exacerbating its problems is the fact that analysts had only expected a loss of $0.06.
Digital audio mixing company EUPHONIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EUPH)") else Response.Write("(NASDAQ: EUPH)") end if %> plunged $2 3/8 to $5 1/2 on no news that Fool HQ could find. A call to the company offered "no news -- yet" and yielded the promise that the company would call us back shortly with an explanation. At press time, no explanation was in hand.
Beef and pork producer IBP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBP)") else Response.Write("(NYSE: IBP)") end if %> was grilled for $7/8 to $23 1/4 after being downgraded by Goldman Sachs from "recommended list" to "market perform."
None
Randy Befumo (MF Templar), a Fool
Selena Maranjian (MF Selena) another Fool
Prem Kumar (MF Prem) another
Fool