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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
Qualcomm Soars
QUALCOMM Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QCOM)") else Response.Write("(Nasdaq: QCOM)") end if %>, a communications company providing wireless phone equipment, services, and related infrastructure, soared $4 13/16 to $52 5/16 this morning on the heels of favorable first quarter results. The company reported Q1 EPS of $0.58 before certain non-recurring items, compared with prior year period EPS of $0.13. After subtracting $0.08 per share for writing off $7 million worth of "in process research and development" (as a result of assets acquired from Now Software last November that will never generate revenue) and writing down $5 million worth of leased manufacturing equipment that will no longer be utilized, EPS came in at $0.50. After these non-recurring items, EPS still beat expectations of $0.49 for the quarter. QUALCOMM reported surprising strength in demand for its Application Specific Integrated Circuit (ASIC) products in South Korea despite the devaluation of the won, and the company noted that it expects to see continued strength from the region going forward.
QUALCOMM's strong showing in the first quarter was significantly impacted by healthy margin improvements. The company's "Communications systems" revenue line (86% of total sales) saw gross margins increase to 25%, compared with 20% in the prior year period and 24% in the fourth quarter. This margin expansion is attributable to the company's higher manufacturing volume due to the record number of shipments of Code Division Multiple Access (CDMA) phones and related chip sets. In the quarter QUALCOMM also sold 10,000 OmniTRACS units (4% addition to the total number of units), which link transportation companies to a two-way data messaging and position reporting service that the company operates by means of a geostationary satellite system. Finally, the company reported that all operating expenses declined in the quarter with the exception of "General and administrative," which gained slightly as a result of increased litigation expenses. Looking at the balance sheet, the company saw a bulge in inventories and receivables, but these seem to be in line with the increase in sales, and days sales oustanding (DSO) actually dropped.
A key component of QUALCOMM's strategy is to continue to be a leading CDMA equipment provider and evangelist for CDMA as the global wireless standard. The company's peculiar brand of CDMA is known as cdmaOne, and only Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> and Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> operate in the same space, supporting the technology. However, QUALCOMM CEO Irwin Jacobs noted, "We have yet to see a change in the competitive landscape for handsets." Motorola, which only recently began shipping CDMA handsets, had a preliminary patent dispute injunction against QUALCOMM's "Q" phone denied. (Motorola claims that the phone is patterned on its own StarTac mobil phone.) With contract service revenues set to grow (Q1 increase of 66%) through the company's partnership in Globalstar Telecommunications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSTRF)") else Response.Write("(Nasdaq: GSTRF)") end if %>, investors may want to take a closer look at this company trading at 23 times 1998 earnings estimates of $2.19 per share, which is a substantial discount to its annualized growth rate of 43%.
New Jersey-based bank and financial services company Summit Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SUB)") else Response.Write("(NYSE: SUB)") end if %> picked up $2 3/16 to $51 1/2 after Standard & Poor's announced this morning that it will replace shares of Caliber Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBB)") else Response.Write("(NYSE: CBB)") end if %> in the S&P 500 index with those of Summit. Caliber is merging with Federal Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %>, which will change its name to FDX Corp. upon completing the merger. That change to the index will be made as of the close of trading on January 27.
Computer services company Computer Task Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSK)") else Response.Write("(NYSE: TSK)") end if %> gained $1 5/8 to $39 5/8 and industrial products manufacturer Barnes Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: B)") else Response.Write("(NYSE: B)") end if %> picked up $2 3/4 to $25 1/4 on being included in the S&P SmallCap 600 index while telecom services company Cincinnati Bell <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSN)") else Response.Write("(NYSE: CSN)") end if %> rose $1 3/8 to $34 1/2 on getting the nod to join the S&P MidCap 400 index, taking Summit Bancorp's spot and moving up from the S&P SmallCap 600 index.
"Generation Y" catalog apparel retailer dELiA*s <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DLIA)") else Response.Write("(Nasdaq: DLIA)") end if %> jumped $3 3/16 to $26 3/16 after reporting a 126% increase in holiday season sales through its dELiA*s catalog and outlet store. Sales for the two-month November/December period totaled $30.3 million through the two channels.
Eidos plc <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EIDSY)") else Response.Write("(Nasdaq: EIDSY)") end if %> ascended $2 1/16 to $14 5/8 after the makers of the "totally rad" Tomb Raider II video game announced that it expects to come in with year-end earnings "substantially in excess of current market expectations." I/B/E/S estimates currently call for earnings of approximately $0.93 per American depository share for the year ending in March.
Communications chip makers gained ground on last night's earnings reports. Level One Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LEVL)") else Response.Write("(Nasdaq: LEVL)") end if %> rose $3 1/4 to $38 after the telecom and datacom chip company reported Q4 EPS of $0.29, surpassing the mean estimate of $0.28 and rising 71% over last year's fourth quarter per-share results. Bookings in the quarter reached approximately $62 million with a book-to-bill ratio of 1.21. November initial public offering Applied Micro Circuits <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMCC)") else Response.Write("(Nasdaq: AMCC)") end if %> rose $1 1/4 to $16 1/4 after the networking chip designer and marketer reported Q3 EPS of $0.20, crushing the mean estimate of $0.11 on a 36% year-over-year increase in revenues of $19.7 million.
Electronics contract manufacturer Sanmina Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANM)") else Response.Write("(Nasdaq: SANM)") end if %> gained $5 3/8 to $62 5/8 on reporting Q1 revenues of $159 million, up from pro forma Q1 1997 revenues of $125.2 million. EPS of $0.63 (before merger-related charges) exceeded the First Call mean estimate of $0.61 and rose 21% from last year's pro forma EPS of $0.52. Jabil Circuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBIL)") else Response.Write("(Nasdaq: JBIL)") end if %> hooked onto the Sanmina wagon, gaining $2 1/2 to $36 5/8.
Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> tacked on $1 5/16 to $31 1/16 after reporting Q4 revenues of $7.3 billion and EPS of $0.42. Before a stock split that took effect today, the company earned $0.84 per share in the quarter, beating the 33-analyst estimate of $0.83. Speaking like the Economic Value Added (return on invested capital above and beyond the cost of capital) company that it is, Compaq reported that its Return on Invested Capital (ROIC) reached an annualized 90% in the fourth quarter, up from 49% in Q4 1996.
Digital subscriber line (DSL) networking companies are all abuzz following reports from the New York Times and "people familiar with the situation" that Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>, Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, and Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> are working on consumer connectivity solutions using DSL modulation schemes. Aware <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AWRE)") else Response.Write("(Nasdaq: AWRE)") end if %> added $7/16 to $14 3/4 and Pairgain <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAIR)") else Response.Write("(Nasdaq: PAIR)") end if %> moved up $1 1/8 to $18 1/2 even though the breathless press reports overstate what is workable in real life, according to communications engineers. Many engineers believe that real-life working conditions are much different than laboratory benchmarks cited in the article, but they also believe that DSL multiplexing is superior to cable bandwidth solutions.
Following yesterday's earnings warning from home healthcare company Apria Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHG)") else Response.Write("(NYSE: AHG)") end if %>, its largest stockholder, Transworld Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWHH)") else Response.Write("(Nasdaq: TWHH)") end if %>, reiterated its offer to buy out all Apria shareholders for $18 per share in cash or cash and equity. The offer was originally made last week and Transworld said that it's still waiting for a response. Apria shares rebounded $1 1/8 to $10 3/8 this morning.
EARNINGS MOVERS
Adaptec <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %> up $1 11/16 to $24 1/8; Q3 EPS before charges: $0.38; net EPS $0.23; 60-days ago mean estimate: $0.57
Day Runner <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DAYR)") else Response.Write("(Nasdaq: DAYR)") end if %> up $3 5/8 to $44; Q2 EPS: $0.90; Estimate: $0.86
Compuware Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPWR)") else Response.Write("(Nasdaq: CPWR)") end if %> up $1 1/18 to $40 1/8; Q3 EPS before charges: $0.29; net EPS: $0.28; Estimate: $0.25
Diamond Technology Partners <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DTPI)") else Response.Write("(Nasdaq: DTPI)") end if %> up $1 1/8 to $16 5/8; Q3 EPS: $0.12; Estimate: $0.10
Crown Crafts <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRW)") else Response.Write("(NYSE: CRW)") end if %> up $1 to $17; Q3 EPS: $0.52; 60-days ago mean estimate: $0.42
PRE-ANNOUNCEMENTS
ShowBiz Pizza Time <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHBZ)") else Response.Write("(Nasdaq: SHBZ)") end if %> up $3 1/4 to $23 3/4; Q4 EPS: $0.29-0.30; Estimate: $0.22
Big, Deep Blue International Business Machines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> fell $7 5/8 to $100 3/4 after yesterday releasing a lumbering-giant sort of earnings report. For the fourth quarter, net earnings increased 3.5% year-over-year, which along with a 6% decrease in the company's share count translated into an EPS increase of 9.3% to $2.11. The First Call mean EPS estimate for the quarter was $2.15, although First Call is not totally sure if each analyst submits a primary or diluted EPS estimate. Zacks, on the other hand, stipulates primary EPS in its estimates, which was also $2.15 for the quarter. IBM forecast weaker first quarter EPS of as little as $1.04, far below the current mean estimate of $1.35.
Business software company Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> fell $6 3/4 to $45 1/4 after reporting a 20% increase in Q3 EPS of $0.60 (before charges), which beat the mean First Call estimate of $0.59. Revenues of $1.24 billion increased 18% over Q3 last year, but analysts didn't seem to be happy with the guidance given by the company or were perhaps spooked by IBM's guidance.
Sitel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWW)") else Response.Write("(NYSE: SWW)") end if %> tumbled $1 5/8 to $9 1/2 after Merrill Lynch cut its rating on the teleservices company to "near-term neutral" from "near-term accumulate."
Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> bottler Coca-Cola Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCE)") else Response.Write("(NYSE: CCE)") end if %> fizzled $3 13/16 to $32 1/16 after reporting cash flow growth of 5% (pro forma) in its fourth quarter and forecasting a 10% increase in cash flow for the coming year, below the growth rate most investors have been expecting.
EARNINGS MOVERS
Xilinx Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XLNX)") else Response.Write("(Nasdaq: XLNX)") end if %> down $1 9/16 to $36 11/16; Q3 EPS: $0.40; Estimate: $0.38
Proxim Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PROX)") else Response.Write("(Nasdaq: PROX)") end if %> down $5/8 to $13 1/2; Q4 EPS before charges: $0.05; net EPS: ($0.32); Estimate: $0.04
Hybrid Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HYBR)") else Response.Write("(Nasdaq: HYBR)") end if %> down $4 1/8 to $5 3/4; Q4 EPS: ($0.52); Estimate: ($0.17)
RF Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RFMD)") else Response.Write("(Nasdaq: RFMD)") end if %> down $1 9/16 to $12 3/16; Q3 EPS: $0.07; Estimate: $0.08
Avant! Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %> down $1 11/16 to $19 3/8; Q4 EPS $0.34; Estimate: $0.34
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Randy Befumo (TMF Templr), Fool One
Dale Wettlaufer (TMF Ralegh), Fool Two
Alex Schay (TMF Nexus6), Fool Three
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