Interview: Thinkequity
>> 10 past the hour. we turn our attention to semiconductor stocks. the philadelphia semiconductor index has gained some ground in the past month. and still down about 15% for the year and still underperforming the broader market . one analyst who says now is a good time to get in is eric ross of thinkequity partners. several stock upgrades recently and we will talk about that and the whole sector. good of you to come on in.
>> appreciate it.
>> still down but things are looking up. how so?
>> the reason it’s been down is because of inventory and pricing pressures related to inventories. our checks in asia two weeks ago when we were there suggest the inventory is burning off faster than people have expected suspect may be done in the second quarter.
>> what do you think―ascribe that to?
>> the demand has held up a little bit better than people would have expected in the first quarter. we think the chinese new year buying will soak up a little bit more of that and some of the companies actually just didn’t buy as much. that’s why the semiconductor companies didn’t see as good of fourth quarter and are seeing a flat first quarter.
>> does seasonality apply or variations with the normal seasonal pattern?
>> that’s a great question. seasonal in the end markets but for the semiconductor companies we’re seeing a little bit of a flatness and instead of seeing a big fourth quarter and a much lower first quarter.
>> i understand there are some rush orders being reported here as well, what’s that?
>> definitely. we talked to a number of the found rice. even though some customers had cut back drastically in the fourth quarter, they are seeing march orders rush which is better than people expected.
>> is this out of the blue or had you seen this a while back or any way to anticipate this?
>> everybody was expecting at some point the inventories would burn off. what we were seeing in september, october and november is inventories were a lot worse than people expected. as soon as we started hearing some of the company commentary and the first quarter we started to hear demand at the end of the fourth quarter, we were expecting that inventories may have been burning off. that’s why we went to asia, specifically to find this out.
>> where are we going from here? smooth sailing or choppy?
>> choppy for a little bit. what will happen first is the news flow is going to turn a little bit more positive from a little bit more negative and we will start to see some of the companies start to come up. we will not be straight shots at the moon from here. also end markets will be a little slower this year. strengthening in 2006 but not a traditional up cycle.
>> the mid quarter update will be disconcerting to some?
>> it will be better than what we’ve heard in the reporting season for the fourth quarter.
>> let’s talk about some of your picks. you have a number of companies that we have put some charts together on. and first of all intel. the big guy.
>> of course. we upgraded it from accumulate to buy.
>> why?
>> the big driver for these guys will be the mobile p.c. they have dominated. they continue to gain share there and the transition to their new product which is the -- that platform is executing perfectly. just excellent. i can’t believe how well it’s executing.
>> and you are seeing demand?
>> we are seeing demand. they continue to see shortage of some intel chips even though dell is not seeing it, a preferred customer. everyone else is scrambling. >> could this be a problem?
>> we think of it as a positive because they are producing as much as they possibly can so margins will be pretty good.
>> and mips. tell us about mips.
>> this is an interesting one. mips is an i.p. play that plays into most of the digital media consumer electronics that we see out there. the digital tv set top boxes, recordable d.v.d.’s, video game consoles.
>> everything that everybody wants right now.
>> exactly. people associate it with the communications bubble of 2000. really a high-powered processor that was used for a lot of the communications products and now being used for digital entertainment.
>> a doubting thomas would say it’s a small stock. doubled in the last month.
>> maybe more.
>> why jump in now?
>> if you look at valuation and growth rate, below where the group is trading. we’ve been very conservative and estimates will come up as well. we any it will be a slow, steady climber, maybe not a double in the next six months but 30% to 40% upside from here.
>> intersil. technology used in flat panel displays. we have seen a lot of flat zphranl displays.
>> our analog analyst has upgraded this and think they are gaining share from some of the big guys, from linear and maxim. and they’re definitely seeing the strength in flat panel displays. also flat panel televisions. so these guys are set to start to come up faster than the rest of the analog group.
>> we hear a lot about the market to be flooded with cheap flat panel stuff. could that hurt them?
>> that’s good for them. the real price that causes the price for flat panels to be high is the glass price. that’s come down dramatically. a lot of capacity in asia. the panel prices should come down 40% to 50% alone.
>> and some disclosure on the companies you mentioned. your positions in them or holdings?
>> i don’t own any of it personally. our company does not own anything and we don’t do investment banking for them.
>> we appreciate your time and input. eric ross of thinkequity partners. we will take a break. 16 past the hour. more on the chip sector ahead. carol massar will talk live with the c.e.o. of qualcomm. in our next hour here on bloomberg tv. and coming up next, the greenspan testimony preview, live from washington, don’t go away. we’ll go back outside again. shall we go outside? i think we will. there it is. it’s too nice a day not to. we are talking about temperatures in the 50’s today in new york city. spring fever strikes a little bit early. i’m directing from the set. back in a moment.
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Listen Market briefing --- Brian (slow)
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>> from new york city, i’m mike schneider. this is the “morning call” . brian sullivan on assignment today. we have of the second hour of our program. the european markets higher right now, the 10-year down a couple of ticks. more on the markets still to come but our top story on this tuesday morning involves verizon once again and its offer to buy m.c.i., facing some roadblocks, new ones this morning. in addition to f.c.c. approval, m.c.i. must get shareholders to say yes to the deal. no surprise there of course but three of m.c.i.’s top six shareholders are not happy. they say verizon’s offer undervalues the company. and that m.c.i. should reconsider quest’s higher bid or stay independent. one of the unhappy shareholders is leon cooperman of omega advisors. he said m.c.i. does not have to make a deal right now.
>> m.c.i. could not only survive but thrive on its own. it’s generating a lot of cash, free cash flow, strong balance sheet, no company issues in my opinion. and i think that verizon underpaid for what they’re getting. and hopefully quest or someone else could improve upon the offer.
>> shares of m.c.i. fell yesterday, partly because the deal included dividends, already promised to investors. the recent consolidation in telecom may lead to changes at the federal communications commission. this is according to “the new york times,” reports now the deals will force the commission to address a number of its policies. one of the topics it must decide on is how long distance service is packaged and paid for. another area up for discussion, expanding broadband services. and even with all the possible changes, most analysts say the deals will be approved. warren buffett and george soros making news this morning by increasing their bets on cable tv companies in the u.s. both billionaire investors are taking advantage of falling stock prices to buy into the top two cable operators. buffett’s berkshire hathaway doubled its stake in comcast to 10 million shares in the fourth quarter. soros, fund management, bought 2.6 million shares of time-warner last quarter. since hitting their 52-week lows in august both companies have rebounded. and they’re attracting new customers with features including video on demand and digital video recorders. retail sales may have fallen last month. the first time we will have seen that since august. economists say a drop in car sales is leading the overall decline. car sales fell 12% in january. automakers were cutting back on incentives. but if you exclude the auto sales economists are forecasting a gain in january retail sales. we will find out for sure. the report is due to be released at 8:30 this morning washington time. about 90 minutes from now. how retail will be impacting trading today, julie hyman standing by live at the new york stock exchange to set up the day for us. good morning, julie.
>> good morning, mike. retailers are already in focus this morning and investors are looking at this number as a signal on the economy. an important signal on the economy and consumer spending. they’re wondering if retail sales are starting to slow down a little bit. they have really held up well even as we’ve seen the economy not necessarily doing well. i talked to russ could say tritch―russ koestrich, is the consumer pulling back or is the spike in personal incomes, caused by the microsoft special dividend, spill over into retail sales, so very much in focus with not just the overall retail sales figure but also with wal-mart earnings which will be out on thursday along with that of target. so that is in focus really centrally in investor sights today. already we are seeing some retailers’ share fall back a little bit in european trading. we’re watching wal-mart as well as home depot, both of those stocks are trading weak over in europe. we’ll see if in a trend continues this morning and what happens when the number comes out. incidentally for the year to date thus far, retailers have not fared very well, if you look at the s&p 500 index of retailers, it’s down just about 4%. one of the worst performers. one of the best performers in 2004, up 22%. if you look at a wider index of these retailers you also see that it’s trading lower. the supercomposite that includes more mid and small caps down, up 21% last year. both of these indices if you look at their individual components, about an even number of stocks that are up and down on the year. e-bay one of the big drags here. it’s down the most thus far in 2005. 28% after rising 80% in 2004. also we wanted to bring those numbers on quest communications. mike was just talking about telecom. quest has definitely been in-income with its competition and its bid for m.c.i. quest posting a six cent loss excluding some items. that is actually less than what analysts had been looking for. so better than what analysts had been looking for. revenue coming in a little bit light of analyst estimates. mike, back to you.
>> all right, julie. thank you very much. about six minutes past the hour. european stocks moving higher as well. matt miller joining us from london right now to look at some earnings results and a whole lot more.
>> a lot of earnings out. the world’s biggest maker of household appliances is electrolux. it will spin off an outdoor products unit and close factories at a faster pace to try and boost profits. profits did fall in the fourth quarter, 37%. that’s because of rising steel prices. and better than analysts expected and knows shares surged 11% in stockholm this morning. v.g. group shares also rose after the former u.k. natural gas monopoly said it beat analyst expectations as well. those shares hit another record high today after b.g. reported a 16% rise in fourth quarter profit. it also raises production targets for 2006 and raised its quarterly dividend 12%. markets up across the board after a down open. a quarter percent gain on the ft-se as well as the cac and the dax as oil producers and health care stocks boost the indexes. a couple of german earnings stories as well. both posting profits from losses in the year earlier period. first off commerzbank with a profit of $129 million in the quarter after it boosted lending income and trimmed loan losses. both good things for a bank to do. shares rose 1%. and munich re, the world’s largest reinsurer, posted $2.3 billion full-year net income after a recovery at its main unit ergos. munich re said reinsurance rates stablized at a high level in january contract talks when about two thirds of its business was due for renewal. those shares rose as well after falling with other insurers this morning. in economic news, germany is teetering on the brink of a recession. the country’s economy unexpectedly contracted in the fourth quarter. as domestic spending fell and exports failed to make up the difference. g.d.p. fell 0.2% from the third quarter when it didn’t grow at all. economists had expected growth actually of 0.2%. the same figure. but on the positive side. a global economic slowdown, the urebes’ appreciation and the highest unemployment since world war ii have held back germany’s export-led recovery. back to you in new york.
>> thanks very much. we’ll take a break. still ahead things are looking better for semiconductor companies. have they turned the corner on their biggest problem? we’ll identify the problem and talk about that and a whole lot more. eric ross of thinkequity partners will be here. let’s take a look outside our window. beautiful sunrise here in lower manhattan. it is february. but there is a hint of spring on the way. pitchers and catchers have reported in florida and arizona. hope springs eternal, mets fans. back in a moment.
