Tuesday, November 22, 2005

Tech is well but US $ strength hurts

TECD reported this morning with results ahead of expectations and above the high-end of mgmt guidance. Both Americas and EMEA were strong sequentially. Gross margin was little weaker due to mix of products and where the product was sold and internal issues. Guidance for January quarter is for growth of 4-7% sequentially and 5%-8% Y/Y, which is on top of US Dollar appreciating about 10% from last year. Which could help us understand little bit why CSCO was cautious on EMEA in January guidance. If EMEA is better than expected given the rise in USD then its all upside for tech. Overall, TECD makes me comfortable that most of tech out there is doing well and end market demand is staying steady atleast with corporates and small-businesses. I am sticking with my call made on Oct18th to get bullish on tech even if Nasdaq is up 9.6% from that day with one caveat that Thanksgiving is as good as we expect it to be. Doing some preliminary work on expectations, it looks as though estimates look reasonable for both December and March 2006.

Sunday, November 13, 2005

Clarification on Huawei in India; ZTE wins at BSNL

I had mistakenly stated that Huawei was banned by BSNL due to its alleged ties with the Chinese government. That information was incorrect and came from a reliable source. It has come to my attention that the reason BSNL has banned Huawei is that because Huawei had earlier failed to deliver equipment on previously won contract for 1.05M CDMA lines. BSNL just rewarded ZTE contract for 2.85M CDMA lines so clearly BSNL is not excluding companies from a particular country from its RFPs. I regret my mistake.

Saturday, November 12, 2005

IBM spreads wings in India

As I had speculated last week about IBM starting to do more acquisitions in India, IBM bought a small outfit in India fews days back. IBM has announced that it has acquired Network Solutions Pvt. Ltd., a Bangalore-based infrastructure services company. Network Solutions will allow IBM to augment its networking and managed services portfolio. Network Solutions seems to be a network implementation and management provider. Not necessarily a play into software development but network related service companies are in immense demand in India also. No financial details were revealed. Expect IBM to take bigger part in Indian market going forward.

Tuesday, November 08, 2005

Brightpoint shining bright

CELL reported results ahead of expectations on both revenues and EPS. For those of you who do not know what CELL does, a quick introduction is in order: CELL is a distributor of handsets for various carriers throughout the world. CELL also distributes accessories for handhelds. CELL usually has great visibility into the end-market demand. Overall it seems as though handset demand remains strong as companies delivered units over the expectations. CELL tells us that channel inventory is lean and that means Q1 might be stronger than seasonality and that is usually good for handset food chain including RFMD, SWKS, MOT, NOK, QCOM, TQNT, TXN, BRCM, LG, Samsung and ERICY. This is just some tea-leaves to keep in your mind, one data point does not make a investment necessarily.

IDTI sounds positive

IDTI reported after market today and the management sounded positive than the pessimistic market expectations. Top line and EPS was better, guidance is inline for revenues but EPS guidance is higher-just what I want. Company is already 80% booked for the quarter, 10% ahead of typical seasonality- is it demand or are people double ordering? Inventory in the channel and at OEMs seems to be a non-issue. IDTI just closed the ICST acquisition and apart from some back-end issues the integration is on-track and the quarter was quite good. Most end markets were healthy with higher fab utilization and opex consolidation should help bottom line grow faster than top line, another one of my favorite plays on restructuring. Communications declined 5% in Sept (which was inventory burn-off by customers- CSCO) but is expected to grow low-to-mid single digits as month of September has seen strong demand. Will this be reflected in CSCO results tommorrow? Computing was strong for IDTI growing 11% with PC and servers showing seasonal demand. Consumer was down 4% due to declining set-top box offset by digital TV demand.

Mastec details

MTZ provided more details on the results for the quarter. The top line was slightly weaker than guidance due to the natural disasters during the quarter top line guidance for Q4 is little weaker also but EPS is higher due to continued margin expansion. Gross margin was higher than expectations even with negative impact from the hurricanes in Gulf Coast and Florida and lower margin from DOT work, these events should be a positive to revenues and margins in next few quarters. During the quarter the FTTx work slowed down considerably for both BLS and VZ, VZ has decided to "stall" work until budgets are released for next year. VZ has stated that the homes passed will grow by 50% next year, leaving plenty of upside to revenue opportunity for MTZ. The affects of VZ stalling spending is already being felt by ADCT, and TLAB to some extent. CMCSA business was missing during the quarter also as that project has winded down and MTZ management has walked away from low-margin government business and indications are it will likely to do so going forward. DTV continued to be largest customer.

MTZ improved margins faster than the top line growth and this trend should continue for forseeable future, which makes this stock a nice play. One overhang on MTZ stock is the looming equity offering. How will VZ spend more on FTTx next year to achieve 50% more penetration, and which equipment categories will be negatively affected by that? I have my opinons on this and would like your feedback on this.

Monday, November 07, 2005

Mastec margins improving- read on Telco/cable spending

MTZ reported results after market and as I had pointed out earlier margins are starting to move up. Gross margins increased nicely from 11.4% to 14.8% sequentially, very tough to see margins increasing in this increasing cost environment. G&A expense was higher but operating margins improved as well. MTZ is a play on not only better spending by carriers on specific projects like FTTx, it's also a restructuring story that trades at a discount to DY. MTZ top line and EPS were better than expected but the guidance for next quarter looks really strong on bottom line even though weaker on top line which means margins will improve going into Q4 also.

Company also filed its 10Q and according to it there was only one customer accounting for 28.4% of total revenues were attributed to one customer instead of two customers accouting for 36.7% from two customers in previous customers. Company also disclosed revenues by industries for only three industries instead of four in June, the missing puzzle is from Energy. Conference call will be held tomorrow, look forward to listening about VZ, BLS, CMCSA spending plans as lower rev guidance suggests slowing down or just customer transition issues.

Saturday, November 05, 2005

Not all revenue is created equal

NT in its 10Q (filed 11/3/05) has revealed that its BSNL business might not be as big as it has once anticipated. NT has raked up losses of approximately $263 million on recognized revenues of $288 million. Not really a profitable endeavor in my opinion. Company expects to build the remaining revenues “profitably, progressively”. That remains to be seen as the size of the deal might not be as large as originally anticipated. So you have less revenues coming in then expected and you have made more losses then expected, just perfect.

The pricing pressure in Indian wireless infrastructure market is notoriously intense driven by low ARPU earned by local operators. ERICY, NOK, ALA have also had trouble making money in India selling equipment. ERICY on the other hand has focused on operating networks (ERICY runs Bharti’s network) to make up for low profit equipment sales. ERICY gets 25% of its revenues from services and operating networks, a trend that will be adopted by others and margins will come under pressure in that business also.

BSNL has a 60-70 million lines tender worth more than $4 billion out for proposal out of which about 25% is reserved for a Indian equipment maker. The NT episode has put other bidders into a defensive tizzy. ERICY, which has over 40% market share in Indian wireless infrastructure market, proclaimed on their earnings conference call “we are not going to lead prices down”. According to my sources BSNL has banned Huawei from bidding. What were they thinking by banning the lowest price bidder? With Huawei missing the pricing might not be as bad this time around. BSNL management has indicated that it would not squeeze suppliers as it was not interested in just buying cheap equipment.

Investors should always pay attention to margin each incremental dollar in revenue brings. Remember, value is created on the margin. After the dotcom bust winning market share by losing more money is not in fashion any more.

Thursday, November 03, 2005

IBM to expand in India

Indian newspapers are reporting that IBM has purchased land in Bangalore. IBM CEO Sam Palmisano was recently in India on a not-so-well-publicized visit. Unlike CSCO recent announcement of spending $800M in India, IBM likes to keep things quiet for now. As IBM has been on the firing binge in Europe and America, the expansion in India would not sit well with some. Given that IBM services bookings was lighter than most expectations, I do not think there were any doubts that IBM will expand in India to get the growth rate of its services business higher and make that business more profitable at the same time. I would not be surprised if IBM acquired some of the Indian players in the field also.

Wednesday, November 02, 2005

First Forbes and now Kiplinger

Kiplinger's Personal Finance mentioned this blog in their November issue. Forbes had picked this site as one of the Best of the Web also. I want to thank all the readers and the editors of the magazines for including this site. This site has been up and running for a year now and there are a lot of articles that are archived. Take a moment and read through some of them, my favorites are 1)Eddie Lampert and Carly2)Why INTC keeps its Capex high 3)NT and LU talking 4)ACN changing 5)No CSCO dividend.

The one thing I want more than anything is to have the readers of this site get more involved with their comments and feedback.