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Techs bounce back
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December 1, 2000: 5:22 p.m. ET
Semiconductors, storage, networking sectors lead techs back from grave
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NEW YORK (CNNfn) - After four days of steep losses, technology shares came back from the grave Friday, with gains being made in semiconductors, data storage and networking shares.
However, a powerful rally that began Friday morning faded in the last hour of trading. The technology-led Nasdaq index, which had been up as much as 151 points earlier in the day, closed up 47.36 at 2,645.29, a gain of 1.8 percent. The Nasdaq had crumbled 4 percent Thursday in the market's second-busiest trading day ever, as 2.6 billion shares changed hands.
 The Philadelphia Semiconductor Index rose 1.4 percent, even though chip leader Intel lost almost 10 percent on the day.
While Friday's gains provided signs of life in the battered tech sector, Merrill Lynch technology strategist Steven Milunovich said that valuation levels "are not screaming bargains yet."
"The question now is soft versus hard landing," Milunovich said in a research note issued earlier this week. "Support for a soft landing includes our analysts' belief that the demand slowdown is an inventory correction, as well as our initial survey suggesting that IT spending will be good next year. Support for a hard landing includes developing credit problems and our 200-year chart suggesting that the period 1995-2000 has been a mania, which are usually followed by panics. The burden of proof is on the optimists, in our view."
"The good news is that tech is getting oversold and could stage a rally, but we doubt the rally would last long," Milunovich added.
Along similar lines, Merrill Lynch technology portfolio manager Paul Meeks said in an interview on CNNfn that he is buying tech shares cautiously, sticking to a few "value" names with low price/sales and price/earnings ratios. Meeks is keeping 15 percent of his portfolios in cash, a historically high level, while he waits for buying opportunities. Value-priced techs he likes now include Tellabs (TLAB: Research, Estimates), Comverse (CMVT: Research, Estimates), and Scientific Atlanta (SFA: Research, Estimates). [181KB WAV, 181KB AIFF]
"We've had a massive revaluation of high-P/E stocks that may have sterling fundamentals, but people say 'I am not going to pay those prices anymore.' So, they might be more willing to pay for stories that are clean but that also have a valuation basis," Meeks said on CNNfn.
As of Nov. 29, the Merrill Lynch Technology 100 Index was down 30 percent year-to-date and 50 percent from its high. The worst-performing sectors were the Internet, down 75 percent year-to-date, and computer hardware, down 45 percent.
Cisco gains ahead of analyst meeting
Cisco Systems (CSCO: Research, Estimates) was one of the big-name techs making gains Friday, closing up 62 cents at $48.50 ahead of the company's analyst meeting next week.
ABN Amro analyst Kenneth Leon repeated his "buy" rating on Cisco's stock Friday, saying he remains positive on the networking equipment maker.
"Key issues will be whether Cisco has lost a step or two in keeping its early-mover advantage on new product fronts, and whether the company is getting too large to respond to rapid-fire market changes," Leon said.
"The amazing 70 percent-plus revenue growth in routers and switching last quarter (86 percent of total revenues) may not be sustainable, while market penetration of the service-provider markets -- access and optical -- is a must," Leon said.
Morgan Stanley Dean Witter analyst Christopher Stix also repeated his "strong buy" rating on Cisco and his $75 price target.
"We continue to believe that business at Cisco is very good, and that good news is likely to come out of the analysts' meeting," Stix said Friday.
Semiconductors advance, except Intel
Semiconductors made solid gains Friday, after being trashed on Thursday in response to a revenue warning by Altera. San Jose, Calif.-based Altera (ALTR: Research, Estimates), which makes computer chips known as programmable logic devices, said revenue should total about $395 million, flat with third-quarter results. Analysts surveyed by earnings tracker First Call had forecast sales of $445.8 million for the October-December period. It was the chip maker's second warning in just under a month, following an early November announcement that sales of its specialty chips failed to meet expectations in October.
On Friday, Altera (ALTR: Research, Estimates) closed up $2 at $25.94, while competitor Xilinx (XLNX: Research, Estimates) gained 94 cents to $39.94
Among the communications chip makers, PMC-Sierra (PMCS: Research, Estimates) rose $3.31 to $95.50, although it had traded as high as $103.25 during the day. Applied Micro Circuits (AMCC: Research, Estimates) jumped $4.75 to $53.19, and Broadcom (BRCM: Research, Estimates) closed up $6.94 at $104.44, having traded as high as $109.75 earlier in the session.
By contrast, microprocessor giant Intel (INTC: Research, Estimates) didn't participate in Friday's rally. It plunged $3.94 to $34.13, a 10 percent loss, on volume of more than 100 million shares, after CS First Boston analyst Charlie Glavin lowered his earnings estimates "to reflect continued weakening demand fundamentals within PCs."
"Channel checks reveal PC pricing pressures continue to ratchet up, with no indications of easing until mid-2001," Glavin said in a research note. "We also believe that notebook demand, one of Intel's strongest drivers, has slowed, leaving Intel with less cushion relative to its overall exposure to the PC industry."
Glavin reduced his calendar 2001 earnings estimate to $1.66 from $1.75 and his revenue estimate to $37.6 billion from $39.3 billion.
Merrill's Meeks said that Intel's problems stem from the fact that it is wedded to the PC sector. Makers of communications-related chips are more attractive, he said on CNNfn. [496 KB WAV, 496 KB AIFF]
Computer hardware edges higher
Most computer hardware stocks edged higher, recovering from a terrible Thursday. PC stocks plunged Thursday after Gateway warned that its fourth-quarter earnings would be nearly half of Wall Street estimates, hurt by weak holiday sales for its personal computers. The San Diego-based company said it now expects to report profits of 37 cents per share for the quarter ending Dec. 31, well below the 62 cents analysts forecast, according to research firm First Call.
On Friday, Gateway (GTW: Research, Estimates) gained 12 cents to close at $19.12. However, the company's stock is still 77 percent below its 52-week high of $84. Competitor Compaq added $1.25 to $22.75 after saying that its board of directors authorized the company to repurchase up to $1 billion of its common shares. Compaq (CPQ: Research, Estimates) said it plans to buy the shares on the open market, depending on market conditions. The computer company said that its systematic repurchase program, initiated in 1998, has been suspended while the program authorized today is in effect.
Hewlett-Packard (HWP: Research, Estimates) added 81 cents to close at $32.44, while Dell Computer (DELL: Research, Estimates) lost 81 cents to $18.44.
Networking and storage gain
Data storage stocks jumped Friday, following a favorable earnings report from Brocade Communications earlier in the week. After the close on Nov. 29, the San Jose, Calif.-based company, which makes the fiber optic switches that link computer-storage networks, reported record fiscal fourth-quarter earnings and revenue that beat analysts' expectations, and gave a strong revenue forecast for next year. On Friday, shares of Brocade (BRCD: Research, Estimates) lost 6 cents to $167.88 By contrast, Emulex (EMLX: Research, Estimates) rose $3.75 to $120, Network Appliance (NTAP: Research, Estimates) gained $4.56 to $53.94 and storage giant EMC jumped (EMC: Research, Estimates) $3.88 to $78.25
Among networking stocks, Juniper (JNPR: Research, Estimates) gained $7.25 to $131.87, Nortel (NT: Research, Estimates) finished flat at $37.75 and Ciena (CIEN: Research, Estimates) gained $1 to $76.94, having been as high as $83.75 earlier in the day. Lucent Technologies (LU: Research, Estimates) rose 13 cents to $15.69, even though UBS Warburg analyst Edward Kerschner removed the telecommunications equipment maker from his highlights list Friday.
Palm, RIM gain after Goldman Sachs comments
Goldman Sachs analyst Vik Mehta said Friday he believes handheld electronic organizer maker Palm Inc. (PALM: Research, Estimates) is on track to achieve its financial goals for the quarter and that its stock valuation is "compelling." Shares soared $4.50 to $40.69, a 12 percent gain.
In a research note, Mehta said, "We believe the shares are down (19 percent this week) based on preliminary results from the retail channel. It has been suggested that component shortages on specific product lines has led to depleted inventories at retailers in the New York area."
"While it is likely that Palm shares have declined in sympathy with the broader sector, we view Palm as one of the few safe havens for growth during this quarter," Mehta said. "Demand for Palm products is higher than supply. We believe this trend bodes well for valuation as long as there isn't a major disconnect between supply and demand."
Handheld communications device maker Research in Motion (RIMM: Research, Estimates) also gained, rising $9.62 to $74.62 
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