Interview: Wells Fargo---Atkins, Howard---Chief Finance Officer
>> we return to our top story today, intel shares having their worst day in almost three years. yahoo also tumbling. investors disappointed about fourth-quarter results and concerned about the current quarter. sunil reddy helps manage $22 billion at fifth third asset management, including the fifth third technology fund. joining us from cincinnati to help put the numbers in perspective. nice to have you with us today. pretty steep dlibs declines for intel and yahoo. do you think the extent of the declines was justified?
>> a couple of things, which are different about intel and yahoo. in intel a case, expectations are reasonable but the actual results were surprising in a negative way. on yahoo, the numbers are slightly off but the expectations were very high and that kind of resulted in the disappointment from investors.
>> so when you look at those results, the early results out from technology companies, how concerned are you about the rest of the earnings season?
>> not very. looking out for the rest of the year, i expect the technology sector to be one of the better sectors amongst the various sectors of the economy and the main reason is, you know, coming into this year, the corporate cash flow, the cash margins are at record levels. there’s ample levels for corporations to invest in technology. we’ll see short-term ups and downs but for th rest of the year, i think it will be a decent year.
>> why are you not more concerned? intel gives a mid quarter update every quarter, which means it didn’t just miss a forecast from three months ago, but just six weeks ago. any concerns you have that something fundamental has changed in recent weeks?
>> in intel’s case, something’s definitely has changed. they haven’t faced the kind of competitive issues they’re facing against a resurging a.m.d. in a long time and a.m.d. is going to report results today and i would expect their results to be pretty good so here’s a case where intel has fallen back on the innovation front, they’re losing market share to a.m.d. and i think that’s causing concern for intel. then, at the same time, they’ve missed numbers, as you said, you know, which they announced just about six weeks back.
>> want to ask in terms of the rally we’ve seen so far for 2006, broadly for the benchmark indexes, but a lot of that being led by technology, the chip stocks, for example. do you think that rally in technology brought us to a point where the stocks got ahead of themselves? well, i think some parts of technology definitely are a little ahead of themselves. but if you look closely, even in intel’s numbers, there are some positives. intel actually increased its capital investment, you know, much more than anybody expected. they’re going to spend almost $6.9 billion in capital expenditure and that’s very positive for the companies which supply equipment to the semiconductor companies or foundries.
>> sun-il, let me jump in. we have news after the bell from ebay. we’ll incourt that into the conversation. ebay out with fourth-quarter results, excluding items, of 24 cents a share in profit, two cents ahead of analysts’ estimates. the company says that first-quarter earnings per share, excluding items, will be 22 to 23 cents a share. that’s short of what analysts were looking for. they were looking for 24 cents for the first quarter. for the second quarter, the company anticipates earning 22 to 23 cents a share excluding ymps also short of analysts’ estimates. analysts, on average, looking for 25 cents a share for the second quarter. as for the fourth quarter, the company’s just reporting, it said sales came in at $1.33 billion, just ahead of analysts’ estimates. again, reflecting what we heard in the profit report, first-quarter profit coming in stronger than expected but it is the forecast for the first and second quarter that look to be shy of analysts’ estimates. another technology company now saying things are not looking very strong.
>> right. this is a classic case where in the industries themselves are pretty robust. in ebay’s case or yahoo’s case and probably the case for google, the online advertising sector is pretty robust. having said that, they go through transitions. right now, we’re in a year where these companies have to invest in their infrastructure and that means their expenses go up. the expectations of analysts as far as margin expansion, they can fall a little bit short. and that might be the case with ebay, also.
>> let me ask you this, for investors, an investor of $10,000, they go into the market tomorrow, where would you put those shares? >> i’d be buying companies which are going through a positive change, companies like applied materials, companies like patrol a.i expect motorola’s numbers wille pretty good, valuation is reasonable. companies ike like qualcomm where wireless spending will be robust and the shift towards 3g.
>> sunil reddy, fund manager with fifth third aetss management. when we return, more on ebay.
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>> ebay shares down about 6% of the investors were waiting for good news from ebay after a estimate spate of bad earnings reports from other technology companies, yet ebay came out with mixed results. the fourth quarter was strong. revenues at $1.33 billion, solidly beating forecasts. u.s. revenues rose a healthy 39% aided by the holiday and acquisitions. yet ebay said earnings would fall below analysts’ estimates in the first half of the year.
>> the companies have been investing in the infrastructure and that means expenses go up. the expectations of analysts as far as margin expansion, you know, they can fall a little bit short and that might be the case with ebay, also.
>> ebay has spent heavily on acquisitions and promotions in the past year, squeezing profits in the short term, including paying $2.6 b.m.i. billion on skype, which is not making money now. many investors are forecasting the strong international growth will offset ebay’s maturing u.s. markets .
>> clearly, the united states will be a clear challenge for them and because of that, they’re looking to other markets , as well. we know the u.k. and germany are important markets for them. promotions have been relatively strong there but at the same time that revenue has been strong there, as well.
>> the problem with that outlook is that the fourth quarter report revealed international growth is slowing. ebay’s international revenues fell from 64% growth a year ago to 35% in the latest quarter. we will speak live with ebay c.e.o. meg whitman tomorrow morning at 9:50 a.m. new york time and i’m sure we’ll have a lot of questions.
>> thanks so much. the ebay report perhaps echoed, as well. earnings out from apple computer, those shares also falling. the company said profit and sales may miss analysts’ estimates, as well. let’s bring in june grasso for details.
>> that’s right. in after hours’ trading, apple is trading lower almost 7%, $77.15. apple’s forecast on the current quarter misses on profit and revenue. apple sees second-quarter profit at about 42 cents after share, lower than the 48-cent consensus estimate and revenue at about $4.3 billion, lower than the estimated $4.63 billion.
>> the margin this quarter to 27.2%, down from 28% the year-ago quarter. what’s driving that is the shift ipod and the other thing we need from them is how they feel about the intel transition. it may be the 42 cents indicates they’ll be low in terms of getting the product into the channel.
>> the company said that first-quarter profit almost doubled as its quarterly sales surpassed $5 billion for the first time, 65 cents per share up from 35 cents a year earlier. ipod pushed apple sales in the quarter, selling three times as many music players this year compared to last. chief executive steve jobs said that ipod spurred a 63% increase in first-quarter sales to $5.7 billion. apple has relied on surging ipod demand to spur mac sales. sales of the more profitable mac computers gained 19% with apple shipping 1.25 million machines. ipod’s accounted foray 1 thard -- 1/3 of apple sales last year.
>> certainly, the momentum around the ipod ask driving near-term results. as you look at 26, 2007 -- 2006, 2007 will be more about the systems side of the business and as you look at new products, extend the share they have with the consumer to new areas of the market .
>> apple stock more than doubled last year. the company has a market value equal to that of dell and ranks eighth in market value among technology companies.
>> thanks so much. also after the bell, a.m.d., very different that be know what what―than what we heard from intel.
>> absolutely different from intel’s 11% drop today. a.m.d. with a remarkable quarter. excluding $110 million non-cash charge related to the reduction of the a.m.d. ownership of the cell phone memory firm, a.m.d. operator earnings 45 cents a share, the best quarter since first quarter 2000, a full 19 cents a share over the analysts’ estimates of 26 cents. revenue, look at these numbers, $1.84 billion. 45% higher than the fourth quarter last year and more than 10% higher than analysts were predicting, they were looking for $1.67 billion. we have a comment from a.m.d.’s chief financial officer, saying that a.m.d.’s growth rate increased in the fourth quarter, resulting in continued market share gains across server, desktop and mobile product lines. what of the current quarter forecast? a.m.d.’s first-quarter sales unchanged to “slightly down” from the fourth quarter, in other words, 1.84 billion or however you want to define the word “slightly” lower. analysts only looking for 1.39 billion in revenue from this quarter. checking the stock in after hours, up 6.15%. showing the reaction graphically in the after hours, we see the spike up ward, the after hours’ reaction, above $36 a share. the conference call scheduled for 5:35 new york time.
>> with all of this news, investors will watch how asian investors react. also, keep in mind, in the last session, the tokyo stock exchange halted trading 20 minutes before the close, a jump in orders overloading the system and a slump there because of what happened with intel after the close yesterday. let’s get perspective and speak with the portfolio manager at baring asset management . do you think trading will open at the regular time given the problems yesterday? >> i’ve heard rumors that they won’t open in the morning. the official line from the stock exchange is that they’ll open in the morning as scheduled and they’ll delay afternoon opening until the order volume falls. they’ve also asked everyone to try to aggregate orders. what’s happening is that this is a specific issue related to how japanese brokers are trading right now. they’re breaking up big orders into a lot of small orders and it’s just creating―it’s the volume of orders and not so much the total volume of trading, that’s really hurting them. but i would guess that they’re going to struggle to hit all their sell volumes in the morning.
>> in terms of the sell volumes, a.m.d. coming in stronger than expected but concern from apple and ebay. what kind of trading do you anticipate?
>> well, what happens in japan frequently moves slightly differently than we would expect it. for example, this whole livedoor issue was a big thing over there. we’ve never heard of livedoor over here. livedoor is a very interesting company to the japanese. their president is a very charismatic person so to hear that they’re having potential regulatory problems, i think, is a very sensational, media event for them so it’s probably likely to spur large retail investor exodus from the markets . i don’t think that the technology earnings reports coming out from the u.s. necessarily will spill into the japanese tech sector. any worse than it already has. i think we’ve seen some pretty large drops already from yahoo! japan and softbank and i would suspect those will mediate fairly quickly.
>> hays, we’re talking about the company rated by japanese prosecutors, livedoor, that had a panic selling and one of the factors at play yesterday. looking more broadly. we have had correction in the japanese market . how attractive is the market looking to you right now?
>> it’s a question of time horizon. if you’re a short-term investor, like many of the individual investors trading on margin in the japanese market over the last two or three months have been, i think you’re likely to want to get shaken out and get out of the market because it’s looking pretty shaky over the last three trading days. if you’re a long-term investor and you look at the chart, i think you’ll find that there’s every reason to think that this is a very healthy correction in what was a fairly overbought market and there’s every reason to think that this is the final reporting quarter for their fiscal year, that the earnings numbers are going to come in fairly good and that the inflation―the economic story continues to be very good. we’re starting to see a lot of reflation. so i would think that there’s every reason to think that this year we’re looking fine in the japanese market .
>> hayes miller of baring asset management .
