Tuesday, July 18, 2006

Calls of Note Part 1

- Piper Jaffray notes the Architectural Billings Index (ABI) was down in June, showing the second negative score in a row for the pipeline of non-residential architects. The ABI has the most direct overlap with Autodesk (NASDAQ:ADSK)'s AEC division, which is ~15% of revenue.

While the ABI was negative again in June, it was only slightly negative at 49.2. At this time we are not alarmed by the slight dip below 50 because it indicates only a slight shrinkage of the project pipeline, but the firm will watch this metric closely over the next several months.

While the ABI is a worthwhile metric,they believe in the past month the Street has overreacted to the slight downturn in the index. Firm emphasises the change in the index is only a fractional downturn. In general, they believe Autodesk's end markets remain healthy.

* ABI is an indicator that provides a look into the 6- month pipeline of ~300 architectural firms and their expectations for non- residential construction activity in the U.S. Over the last 12 quarters the average quarterly ABI has had a correlation of 0.86 with Autodesk's design solutions revenue.

Notablecalls: ADSK may have some more downside in it but I would wait til it breaks recent lows.

- Citigroup notes their checks suggest that 2FQ has been yet another challenging quarter for Dell Computer (NASDAQ:DELL) due to decelerating end market growth and aggressive pricing by competitors who have significantly improved their relative cost structures during the past five years. They believe demand has been more challenging in the U.S. while competitive pricing has been more challenging in Europe (versus the company's expectations).

Firm believes lower than expected U.S. demand simply reflects decelerating corporate and government end market growth following three above-trend years. They expect this deceleration to continue into the first half of 2007 until comparisons get easier and installed base age moves back above average. Sales to corporate and government customers in the U.S. and Western Europe represent more than 50% of Dell's total revenue. Checks also suggest that Dell has not enjoyed as much price elasticity within U.S. consumer this quarter as the company had hoped. Perhaps past tech support and product quality challenges are overriding price in the minds of prospective consumer PC buyers. Sources suggest that Dell has walked away from a number of deals in Europe due to aggressive pricing by HP.

Believes Dell is likely to announce 2FQ07 EPS below consensus of $0.32. We remain at $0.30. We note that the company's annual shareholders' meeting, which is scheduled for this Friday, has been used to update quarterly earnings in three of the past five years.

Notablecalls: Not actionable but good to know category.

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