Monday, December 11, 2006

Pre-Market - Monday December 11th

Potential NR7 - FCX, MA, PLCM (bullish flag), TRID

Monetary tightening in India caused a huge sell off last night in the Sensex (-2.9%) and bond market. Considering the recent run, instit likely to take profits..would expect further downside pressure in the banks..the two that trade are HDB and IBN. Others include India fund IFN, INFY, RDY, REDY, SAY, REDF, SIFY, TTM, VSL, WIT... Further yen weakened considerably to the dollar overnight (117.1) making Japanese exporters attractive: HIT, NSANY, HM, TM, NPANY, CAJ, ATE.

Friedman Billings raises their tgt on Celgene (CELG) to $74 from $60 saying they have had an impressive A.S.H. so far, with the frontline myeloma data (Revlimid + low-dose dexamethasone) accounting for most of the buzz. These data, to be officially presented Tuesday, should facilitate the drug's growth into the largest subset of myeloma (the frontline market, both transplant and non-transplant). Also, based on the strong C.L.L. data being presented today, and doctor commentary over the weekend, firm is layering on the U.S. C.L.L. market opportunity for Revlimid, resulting in $190 million in incremental sales by 2010, assuming 2009 approval and off-label sales beforehand.

Friedman Billings says their stance on the semiconductor sector as a whole remains cautious following their trip to Asia last week, as it appears that holiday sell through generally did not generate upside in component demand. As a result, firm thinks the industry inventory correction is likely to continue into 1Q. Notebook demand appears to be a notable exception, with stronger 4Q conditions, and optimism for 1Q due to Vista. They believe investors should take a neutral position on the group through the 1Q earnings season. Firm thinks the period after the Lunar New Year (mid-February) will represent the next potential catalyst for the group, as they believe that is the next potential opportunity to see meaningful changes in forecasts. In the meantime, firm still favors stocks in the PC space (INTC and NVDA) ahead of the Vista launch. BRCM is firm's favorite name for 2007, not due to near-term conditions, but rather due to its potential for upside to expectations for 2007.

Semis Scorecard-Given that we are getting closer to the what is traditionally called "the Q1 punt" (selling semiconductor stocks ahead or during the traditional Q1 slowdown experienced perennially in the semiconductor industry) by tech heavy buyside investors, we thought we would highlights the significance of the event and the implications for the sector. While its important to note it is difficult to time when exactly the weakness will occur and we do not believe history repeats itself, we will note some historical trends which should provide some color on our thesis. Our contention is Q1 will be JUST seasonal or less than seasonal period for the semiconductor industry. To get a better understanding of why we believe this to be the case, let's take a look at the SOX. The SOX rally begin in Aug of this year with Nov providing a noticeable amount of frenzied upticks to the index. Last year, the SOX was on a downwards trend from Aug heading into Nov (the exact opposite of this year) bottoming in the 413 area only to stage a rally in Nov (as it did this year) followed by a modest Dec downtrend heading into the end of Q4. Overall, the SOX has seen a 20% move since Aug 1...The optimism has been fueled by a variety of factors, but the theme that constantly comes into play about the sustained momentum is Vista. The Vista O/S being released has broad implications for semis in the form of PC sales, memory (DRAM demand), graphics, just to name a few. As the Vista release is slated to be for Q1:07, the sentiment appears to suggest Q1 could be "better than" seasonal, which of course would suggest their is less weakness for Q1 than projected in most analyst models. In the event this does not come to fruition, which we suspect will be the case, the correction in the semi sector could retrace a significant portion of the uptick seen since Aug. We note ISIL's recent comments at an investor conference in which they suggested PC demand looked "soft" and specifically downplayed Vista as a catalyst. While ISIL is just one piece of the PC equation given their exposure to power management, this is worth noting in light of market optimism of the operating system. As a result, we would suspect active tech buyside investors to "chase beta" to mark up for year end, followed by an abrupt "punt" aka sell off into early Jan. This contention is based off of several factors which portend for a correction in the semiconductor sector being somewhere in the periphery in the Jan timeframe...First, we note the TSM announcement last Friday regarding a 10% y/y rev drop and UMC echoing a similar sentiment on Thursday of last week announcing a 7.7% y/y rev drop. As order trends appear to be moderating at the foundries, the street may start to become atypically more cautious heading into Q1. The two fabless names which always stand out are BRCM and MRVL. BRCM, coincidentally is also the third largest percentage of MV of the SOX. Second, a host of semi companies guidance being less than expectations which translates to "less than seasonal" for Q1. We note NSM, ALTR, XLNX as prime examples of missing the mark on guidance heading into what is seasonally already modeled to be a slower qtr and all of which are components of the SOX. Third, What happened to NAND flash and SNDK? This stock was a darling and a huge consumer play last year as it peered at the $80 mark in Dec. The second buzzword for 2007 in the semi space is flash growth. SNDK, which is the second largest in terms of % of MV of the SOX, has been hampered by pricing concerns, integration issues associated with the FLSH acquisition and cautious sellside sentiment. As the flash space has been part of the semi cap equipment story along with DRAM, in the event the orders start to slow in this space, investors could head for the exits as well. While the purpose of this comment is not scare investors into shorting semi stocks ahead of Q1, its relevance is to provide the importance of this well known market phenomenon and to gauge the significance of the Vista catalyst.

Courtesy of

1 comment:

Jamie said...

FCX gapping up