The Star Online: Business
The Star Online: Business |
- Analysis: Apple earnings need to overcome technical malaise
- Blockbuster UK administrators to shut 129 stores, cut 760 jobs
- Intel may have little choice in big manufacturing bet
| Analysis: Apple earnings need to overcome technical malaise Posted: 19 Jan 2013 05:24 AM PST NEW YORK/SAN FRANCISCO: To those who study technical stock charts, Apple Inc looks broken. Even though it is widely viewed to be undervalued after hitting an 11-month low this week and nine out of 10 brokerages recommend that investors buy or hold the stock, Apple shareholders could still be in for more rough times if technical strategists are right. They note that trading charts show few price points where investors can expect clusters of buying to support Apple's shares. For example, the stock's medium-term momentum, based on its 50-day rate of acceleration, has been on a downward slope since March, but has not hit over-sold levels. Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, said it is hard to find an entry point at current levels, calling the stock "broken." "There's been a lot of technical damage, but at the same time it still looks like it's in a downtrend," Detrick said. "This could still be a name you want to avoid and could very well still underperform in our opinion." Apple has a chance to turn things around when it reports results for the December quarter on January 23. Investors are unusually nervous because of reports that Apple might be curtailing purchases of screens for its iPhone and iPad, which together account for over 70 percent of revenue. If Apple can substantially beat Wall Street's subdued expectations, that would go a long way towards restoring confidence in the near term. It is not enough for Apple to just meet targets - that could cause shares to fall further in the short term, some analysts say. Apple has only missed analysts' profit forecasts four times in the last 10 years, two of those in the most recent reporting periods. "If you have a 10 percent to 15 percent beat on estimates, it will be enough to have people say, 'Oh my gosh, Apple has its game back,'" said Chris Bertelsen, chief investment officer of Global Financial Private Capital, a Sarasota-based wealth manager with $1.7 billion assets under management. The fund had cut back its holdings in Apple to less than 1 percent of its portfolio from about 5 to 6 percent last fall, but Bertelsen said it is now adding again. He likes Apple's longer-term prospects as the global smartphone market grows, particularly in developing countries such as India and Brazil. Analysts on average estimate Apple's fiscal first-quarter earnings per share at $13.41, down slightly from $13.87 in the year-earlier quarter. Revenue is seen up 18 percent at $54.7 billion, according to Thomson Reuters I/B/E/S. The December quarter is typically the strongest one of the year for consumer electronics sales and Apple had a new product, the iPad mini, in its holiday season line-up. Wall Street estimates Apple sold between 47.5 million and 53 million iPhones, up considerably from the 26.9 million sold in the previous quarter, when the iPhone 5 had not made it to all markets. IPad sales are expected at 23 million to 25 million. BULLS OUTNUMBER BEARS Apple shares have fallen nearly 30 percent after hitting a record high in September, in part on worries that its mobile devices are no longer as popular as they were. As competition intensifies from Samsung Electronics Co Ltd and others using Google Inc's Android software, investors are wondering if Apple's days of hyper growth are over. There are still plenty of Apple bulls on Wall Street. Forty-eight out of 58 equity analysts who cover the stock rate it a "buy" or "strong buy" and another seven say it is a "hold," according to Thomson Reuters data. Only three recommend that investors sell the stock. The median price target is $745, which is roughly 50 percent above Apple's Friday close of $500. The company is expected to continue to post double-digit revenue growth into at least 2015 and a StarMine analysis of its expected growth over the next decade puts the stock's intrinsic value at about $708 a share. "We still expect iPhone growth. They are still pointing to a strong December quarter and, if you think there's any momentum left, that they can grow on the high end (of the smart phone market) or find growth in other sectors, this is a buying opportunity," said Morningstar analyst Brian Colello, who has a fair value call on Apple at $770. Investors also expect Apple to follow through on a promised $10 billion stock buy-back program. "If the company is not buying back at this level, I think it's absurd and suggests that something is seriously wrong with the company," said Mark Mulholland, manager of the Matthew 25 fund, which has about 17 percent of its holdings in Apple. Last year, the fund posted a considerable 29 percent gain, although it lost 2.8 percent in the last quarter as Apple slumped. (Apple shares gained 31 percent over 2012) Mulholland values Apple at more than $1,000 per share, based on its growth prospects and cash level. Apple had cash and securities of $121.25 billion at the end of September, or about $129 per share. Still, he agrees with technical analysts who say there is little momentum behind the stock. Some point to support near $425 per share, which means there is room for the stock to fall another 15 percent from current levels. "Three things influence a stock price: growth, value and momentum. The growth and value are there, but you've completely lost your momentum," said Mulholland. Apple shares are trading at 15.4 times projected 12-month earnings, a level that analysts say is unusually inexpensive for a company with its growth profile. Samsung trades at a forward P/E of 7.6, while Nokia trades at 92.3 times. Sandy Villere, portfolio manager of the $356 million Villere Balanced Fund, said the fund has been scooping up more shares as the price fell, but notes it is more fashionable to be down on the iPhone, iPad and Mac computer maker these days. "It's becoming almost a contrarian thing to want to buy Apple shares," Villere added. It's "a great buying opportunity." - Reuters |
| Blockbuster UK administrators to shut 129 stores, cut 760 jobs Posted: 19 Jan 2013 05:21 AM PST LONDON: Entertainment retailer Blockbuster UK will shut 129 of its 528 stores and make 760 out of its 4,190 employees redundant, the firm's administrators said on Saturday in the latest bad news for Britain's gloomy high streets. Blockbuster, which is owned by U.S. satellite TV company Dish Network, went into administration on Wednesday, days after music and DVD retailer HMV did the same. "Having reviewed the portfolio with management, the store closure plan is an inevitable consequence of having to restructure the company to a profitable core which is capable of being sold," Blockbuster administrator Lee Manning of Deloitte said in a statement. The 129 store closures, which will take place gradually over the coming weeks, are in addition to 31 store closures that had already been decided prior to administration, the statement said. "The joint administrators continue to review the profitability of the store portfolio and announcements of further closures may be made in coming weeks," it said. Blockbuster is the third casualty in the British retail sector since Christmas, after HMV and camera chain Jessops. Many specialist retailers are struggling against competition from supermarkets like Tesco, online stores like Amazon and download sites like Apple's iTunes. British retailers are also suffering from Britain's protracted economic troubles, with little wage growth for consumers whose budgets are being squeezed by government austerity measures. - Reuters |
| Intel may have little choice in big manufacturing bet Posted: 19 Jan 2013 05:18 AM PST SAN FRANCISCO: Intel Corp's decision to spend $13 billion in 2013 to develop and build future manufacturing technology has not gone down well on Wall Street but it may be necessary if it wants to stay on top of rivals in coming years. The top chipmaker's shares slumped nearly 7 percent on Friday, a day after executives said the company would increase 2013 capital spending from an already dizzying $11 billion. Some analysts decried the move, saying adding new capacity should be far from Intel's mind in a waning personal computer market. Increased spending may further pressure margins and leave Intel with even more idle capacity if PC sales keep falling. But others believe that Intel's top priority must be maintaining its technological edge, a costly but necessary endeavor that may even pay off in the long run with market share gains. Moving up the technology ladder can also deliver cost savings, helping safeguarding Intel's margins as it tries to catch up to rivals in smartphones and tablets. "That's the bet they're making and they're all in," said Sanford Bernstein analyst Stacy Rasgon. "If you stop, TSMC and Samsung close the gap - and you're toast." Of Intel's $13 billion capex this year, $2 billion will go toward expanding a fabrication plant, or fab, in Oregon where engineers will work on a long-term plan to manufacture microchips on silicon wafers measuring 450 mm - about the size of a large pizza. The other $11 billion goes toward more immediate improvements in Intel's manufacturing technology, letting it build chips over the next two or three years with features measuring just 14 nanometers, and then 10 nm. The narrower the features, the more transistors can fit on a single chip, improving performance. The newest fabs currently use 300 mm wafers, about the size of a vinyl record. Moving up in size will make room for more than twice as many chips to be etched on each, leading to cost savings. Lowering costs will be a serious priority for Intel as it ventures into the tablet and phone markets, where chips sell for much less than in the PC industry. Intel, which has yet to make meaningful progress in mobile, stresses that its most advanced fabs have the lowest cost per chip produced. "One of reasons why Intel is so aggressive on capital spending is to maximize the chances it has of protecting its gross margins as it moves into smaller and lower priced CPUs," Longbow Research analyst JoAnne Feeney said. SPENDING SPREE Intel is not the first tech company to worry Wall Street with aggressive long-term investments whose payoffs are difficult to estimate. Investors in the past have criticized Amazon.com Inc While the size of Intel's capex increase alarmed investors, the chipmaker since 2011 has been spending heavily. Intel normally pours 12 to 16 percent of its revenue into capex, but spending has been closer to 20 percent in the past two years and will probably be higher this year, Feeney estimated. The costs of developing the new technology to use 450 mm fabs are so high that just a few companies, such as Intel, Samsung Electronics and Taiwan's TSMC, are expected to have the scale to make the jump worthwhile. Building 450 mm plants from the ground up is expected to cost $10 billion or more. It's not just a matter of creating bigger silicon wafers. Most of the high-tech equipment - sold by the likes of Applied Materials The transition from 300 mm to 450 mm is so expensive and complicated that the world's biggest chipmakers and tool makers are collaborating to establish new standards and timing new technology. Intel made a $3 billion strategic equity investment last year in chip equipment supplier ASML Intel's Oregon plant will lead the effort to produce chips on 450 mm wafers, with other larger Intel plants upgraded in the future, Chief Financial Officer Stacy Smith told Reuters on Thursday. Rasgon said Intel's long-term investments in manufacturing will mean more pressure on its margins over the next few years, but that its spending will help ensure it remains a major player in the chip industry over the next decade - though there's no guarantee. "If there's any company I can look at five years from now, they'll be here and they'll be really successful at whatever they're doing. But I don't know what they'll look like," Rasgon said. "They have to do this, but it doesn't mean I want to own the stock while they're doing it." - Reuters |
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