- Merrill Lynch is yet again cautious on Agere (NYS:AGR) following negative pre-announcement from Marvell (MRVL). Firm thinks MRVL saw significant order declines and cancellations in September suggesting that seasonal pickup is weaker expected in the HDD industry. Production trends at AGR's customers in July and August suggest that AGR's storage business in the Sep-06Q is tracking well below firm's forecast. If production trends at Agere's customers don't improve significantly in September, they think Sep-06Q estimates could be at risk.
Overall unit production at AGR's (35% HDD exposure) customers declined by 7% in July and August (first 2 months of Sep-06Q) compared to April and May (first months of Jun-06Q). Even after adjusting the data for share shifts at MXO in Q2, the firm estimates that AGR's units declined by about 2% in the months of July and August on a Q/Q basis. This is well below ML's current forecast of 10% growth in Agere's storage business for the Sep-06Q.
MRVL's new forecast implies a 20% decline in its storage revenues in the Oct06Q suggesting that orders have come to a stand still in September. It's possible that MRVL's customers (especially 2.5" customers) built aggressively in August expecting a seasonal pickup which did not materialize. Given the magnitude of the miss, the firm thinks it's reasonable to expect MRVL's storage revenues to rebound in Q4 although the magnitude of the rebound will
depend on the health of the PC market.
Notablecalls: First, check my comments on AGR from Sept 6. ML was out cautious on AGR but I didn't dare the call it outright actionable then. I was lucky as the shares took a 1pt hit and then rallied 2.5 pts over the next 10 days. AGR will take a hit today and will bounce again. That bounce will most likely prove to be shortable. Also, notice the comments on MRVL regarding the possible rebound in Q4. That will help MRVL to bounce today.
Overall unit production at AGR's (35% HDD exposure) customers declined by 7% in July and August (first 2 months of Sep-06Q) compared to April and May (first months of Jun-06Q). Even after adjusting the data for share shifts at MXO in Q2, the firm estimates that AGR's units declined by about 2% in the months of July and August on a Q/Q basis. This is well below ML's current forecast of 10% growth in Agere's storage business for the Sep-06Q.
MRVL's new forecast implies a 20% decline in its storage revenues in the Oct06Q suggesting that orders have come to a stand still in September. It's possible that MRVL's customers (especially 2.5" customers) built aggressively in August expecting a seasonal pickup which did not materialize. Given the magnitude of the miss, the firm thinks it's reasonable to expect MRVL's storage revenues to rebound in Q4 although the magnitude of the rebound will
depend on the health of the PC market.
Notablecalls: First, check my comments on AGR from Sept 6. ML was out cautious on AGR but I didn't dare the call it outright actionable then. I was lucky as the shares took a 1pt hit and then rallied 2.5 pts over the next 10 days. AGR will take a hit today and will bounce again. That bounce will most likely prove to be shortable. Also, notice the comments on MRVL regarding the possible rebound in Q4. That will help MRVL to bounce today.
Would think about scaling in around current levels.
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