Tuesday, July 11, 2006

Calls of Note Part 1

- Banc of America is reducing their revenue and EPS estimates for Arrow (NYSE:ARW) and Avnet (NYSE:AVT) for C2006 and C2007 due to near term weakness at certain mid-range computer OEMs and they assume a more muted forward components outlook.

Despite the modest C2Q06 forecasts, they expect both ARW and AVT to report roughly in line C2Q06 results. Firm's revised estimates are still within management's prior guidance and largely consistent around consensus.

Global semiconductor demand Y/Y growth has remained at 7-8% over the past few quarters, as measured by SIA. Historically, ARW and AVT's component revenue organic growth has been directionally correlated with the semi demand growth. With global semi shipments growth remaining at moderate 7-8%Y/Y lately, the street, and firm's assumptions, for much more robust revenue growth rates at ARW and AVT are likely too optimistic. In addition, a modest demand growth should also provide headwinds for component margin expansion at ARW and AVT.

ARW's tgt goes to $32 from $37 with AVT's going to $22 from $28. Maintains Neutral on both due to valuation.

Notablecalls: Expect to see some additional pressure on both stocks in the coming days.

- UBS says their channel checks on ADC Telecommunications (NASDAQ:ADCT) indicate a slowdown/cut in orders at some 2nd tier passive component suppliers in June/July potentially due to excess FTTP inventory at VZ. Firm also believes there has been a slowing in FTTC spending at DT. They therefore lower y/y sales growth estimates for fiber connectivity from 71%/21% in FY06/07 to 64%/17%, resp.

Firm lowers FY06 and FY07 pro-forma EPS estimates for the combined ADC-Andrew company to $0.90 and $1.06, respectively, from $0.92 and $1.11 previously, and lowers CY07 price target to $18.50 from $20.50.

Notablecalls: Would not be surprised to see some additional weakness today.

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