- Citigroup notes that after disappointing CQ4:06 guidance from Xyratex (NASDAQ:XRTX) together w/recent Hitachi commentary (2H:06 hard drive (HDD) units revised down ~14%), they highlight near-term risk to Veeco Instruments' (NASDAQ:VECO) data storage orders.
While VECO's 2H:06 order guidance embeds a typically weak seasonal order scenario for storage (down ~30% 2H/1H), recent data points + channel checks suggest industry storage orders tracking below this typical pattern.
While unlikely VECO misses low-end of CQ3:06 order guide ($115-130MM), the issue is more CQ4 (as suggested by XRTX) such that CQ1:07 consensus revenue/EPS appears at risk (firm remains ~15% below consensus for CQ1:07).
While stock has underperformed the tech rally since mid-July (+5% vs +10%) and this is a prime candidate for M&A (AMAT, for example) and/or strategic buyers, they continue to wait for a reset of C2007 expectations to get more positive and see stock range-bound (at best) meantime. Maintains Hold.
Notablecalls: Not actionable but good to know category. I don't think it will get hit much following XRTX's guidance.
- Merrill Lynch notes that with Silicon Labs' (NASDAQ:SLAB) negative preannouncement yesterday, they're becoming increasingly cautious on Skyworks' (NASDAQ:SWKS) Sep-06Q. Silicon Labs, a supplier of GPRS transceivers, noted significant weakness at China OEMs and in the Taiwan ODM market. Skyworks also has significant exposure to these customers for both transceivers and power amplifiers (they estimate about 20% of sales). For the Sep-06Q, they're currently modeling for revenues of $198mn (1% Q/Q growth) and non-GAAP EPS of $0.05, which is inline with consensus.
While the firm believes LG's chocolate phone, which contains SWKS CDMA transmitter and
receiver silicon, is ramping strongly; Skyworks' share loss at Nokia continues to be a concern. Going forward, Nokia will source its CDMA phones through contract manufacturers such as Pantech and Curitel.
With shares up over 40% from their recent low amidst reports that inventory levels are normalizing in Asia, they believe the stock is pricing in an optimistic scenario. Clearly, Skyworks was somewhat oversold following 2Q earnings, but the company now trades at a premium to its primary competitor RFMD on CY07 EPS and is now inline with its four year average NTM P/E of 28x. Given share loss risk at Nokia, weak demand out of the China and Taiwan markets, lack of margin progress, and balance sheet problems (DSOs, inventory), they see limited upside from current levels. Neutral rating stands.
Notablecalls: Expect to see some pressure in SWKS in the coming couple of days.
While VECO's 2H:06 order guidance embeds a typically weak seasonal order scenario for storage (down ~30% 2H/1H), recent data points + channel checks suggest industry storage orders tracking below this typical pattern.
While unlikely VECO misses low-end of CQ3:06 order guide ($115-130MM), the issue is more CQ4 (as suggested by XRTX) such that CQ1:07 consensus revenue/EPS appears at risk (firm remains ~15% below consensus for CQ1:07).
While stock has underperformed the tech rally since mid-July (+5% vs +10%) and this is a prime candidate for M&A (AMAT, for example) and/or strategic buyers, they continue to wait for a reset of C2007 expectations to get more positive and see stock range-bound (at best) meantime. Maintains Hold.
Notablecalls: Not actionable but good to know category. I don't think it will get hit much following XRTX's guidance.
- Merrill Lynch notes that with Silicon Labs' (NASDAQ:SLAB) negative preannouncement yesterday, they're becoming increasingly cautious on Skyworks' (NASDAQ:SWKS) Sep-06Q. Silicon Labs, a supplier of GPRS transceivers, noted significant weakness at China OEMs and in the Taiwan ODM market. Skyworks also has significant exposure to these customers for both transceivers and power amplifiers (they estimate about 20% of sales). For the Sep-06Q, they're currently modeling for revenues of $198mn (1% Q/Q growth) and non-GAAP EPS of $0.05, which is inline with consensus.
While the firm believes LG's chocolate phone, which contains SWKS CDMA transmitter and
receiver silicon, is ramping strongly; Skyworks' share loss at Nokia continues to be a concern. Going forward, Nokia will source its CDMA phones through contract manufacturers such as Pantech and Curitel.
With shares up over 40% from their recent low amidst reports that inventory levels are normalizing in Asia, they believe the stock is pricing in an optimistic scenario. Clearly, Skyworks was somewhat oversold following 2Q earnings, but the company now trades at a premium to its primary competitor RFMD on CY07 EPS and is now inline with its four year average NTM P/E of 28x. Given share loss risk at Nokia, weak demand out of the China and Taiwan markets, lack of margin progress, and balance sheet problems (DSOs, inventory), they see limited upside from current levels. Neutral rating stands.
Notablecalls: Expect to see some pressure in SWKS in the coming couple of days.
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