CSFB Tech Daily Tuesday, December 19, 2000
Jon Mano (212) 325-4530 www.tech.csfb.com
1
CTN 339.51 -10.38 -2.97%
RESEARCH UPDATE
Siebel Systems (SEBL-$78-Cap $39.7B-Strong Buy)
Brent Thill, 415-836-7712
Where the Next Opportunity Lies
· SEBL still remains the gorilla within the CRM market. But the growth in core U.S. enterprise
accounts is moderating more than most expect (apprx. 40% y/y and 15% seq growth in
Q3:00 vs 60%+ y/y and 20%+ seq in ’99).
· Primary growth engines reside in mid-market (400%+ y/y growth, 27% of total license up
from <5% last Q3) and international (261% y/y growth, 43% of total license). These two
engines have been responsible for accelerating growth rates.
· It appears U.S. enterprise accounts are digesting the first wave of major CRM applications,
leaving the door open for SEBL and other vendors to roundout the CRM vision with
additional applications. SEBL ’01 (spring product release) could provide the next catalyst.
· We believe these metrics highlight the issue of where we are in the lifecycle of CRM.
Solectron (SLR-$26.72-Cap $18.9B-Buy)
Mark Hassenberg/ Herve Francois, 212-538-4210/ 325-6187
As Growth and Profit Opportunities Expand Shares Decline
FY00A: $0.85 , FY01E: $1.00
· SLR reported strong results in F1Q’01 despite the slowdown in the PC and certain telecom
sectors exceeding consensus estimates.
· As the economy is slowing, SLR is benefiting from increased outsourcing and acq
opportunities and continues to gain market share.
· Networking (up 25% seq) and telecom (up 32% seq) continue to be the primary driver of
growth. Revenues should continue strong double digit growth as optical & new generation
wireless products ramp up in 2001.
· Nortel Networks acquisition leads to substantial gain of telecom revenues as percent of
sales. SLR’s position in Asia has been strengthened with the acquisition of Natsteel and
Sony. We expect Sony and NEL to substantially contribute to growth in the Feb qtr.
· Current valuation of roughly 20x CY01 cash EPS ignores the growth opportunities at SLR
stemming from accelerating business with telecom/datacom OEMs, successful acquisitions
and expansion in Asia. We are continue to rate SLR’s shares a Buy with a 12-month target
price of $52, up 95% from current levels.
Scientific-Atlanta (SFA-$39 15/16-Cap $6.7B-Buy)
Matyjaskiewicz/Parmelee, 212-325-6172/6191
Broadband Demand Concerns Prompt Unjustified Sell-off in SFA Shares; Reiterate BUY
FY00A $0.92; FY01E $1.60
· Recent pre-announcements have prompted concerns regarding the pace of broadband
rollouts and sparked a significant correction in SFA shares (down 34% in the past month vs.
20% for the telecom equipment group); Most recently, TERN’s pre-announcement yesterday,
indicated slowing industry demand trends as opposed to company specific issues.
· However, we would characterize TERN’s woes and AT&T’s capital spending slowdown as
primarily company specific as opposed to secular in nature; In fact, we remain upbeat
regarding the outlook for SFA’s digital set top business (53% of FQ1:01 sales) and believe
deployments are set to accelerate in C2001 driven by commercial rollouts of video on
demand (VOD); Moreover, our checks indicate the company continues to gain market share
in transmission (we estimate 10 percentage points in the last 4 qtrs);
· Project SFA is on track to meet our FQ2:01 $632.8M top line projection; Anticipate digital
set-top shipments in-line with our 1.1M forecast due to mfg capacity constraints; Potential
exists for modest upside to our $0.39 EPS forecast due to lower operating expenses. For
2001, we continue to view our set-top projection of 4.7M units as conservative and believe
the potential exists for upside to our transmission forecast of $826M based upon
international opptys, most notably with Callahan Associates in Germany.
· Following yesterday’s 12% decline SFA shares are currently trading at 23.3x our C2001 EPS
est, below its peer group average of 26.4x and our 3yr EPS growth rate of 30%; On a market
cap/C01 sales basis SFA is trading at 2.0x vs. an avg. of 2.7x for the Broadband Access
group; SFA remains our top pick in the broadband access segment due to strong industry
demand fundamentals, superb mgmt execution, and good visibility; Reiterate BUY.
Handspring (HAND-$45.50-Cap $6.7B-Buy)
Marc A. Cabi/ Ray Sharma, 415-836-7701 / 8664
Talk to the HAND 2000E CY($0.48) CY2001E ($0.33)
· Handspring announced that it has begun shipping its mobile phone module, VisorPhone.
· Although only expected to be shipped in low volumes, our checks indicate a strong interest
in VisorPhone. Additionally, our retail polls continue to indicate record demand across the
mobile device space.
· The entire Handspring product portfolio appears to be in high demand, with the Platinum and
Visor Deluxe estimated to be the best sellers, followed by Prism and Visor.
· With the lock-up expiration behind us, we believe that Handspring is an attractive investment
and we reiterate our BUY.
Nokia (NOK $45.5-Cap $218B-Strong Buy)
Marc A. Cabi/ Ian Burgess
415-836-7701/ +44 20 7888 0271
Nokia Channel Check Update
FY00E: $0.73 FY01E: $0.95
· Our most recent round of channel checks
reveals that wireless phones remain a hot gift
item for the Holiday season and confirms our
belief that Nokia is well positioned going into Q4.
· Our retail checks indicate that the Nokia 8200
and 5100 series are experiencing strong
demand throughout the US, with some locations
back-ordered for the 8260/8290. All AT&T
Wireless and VoiceStream locations polled cited
Nokia as their #1 selling brand and dependant
on store location and demographic area noted
that either the 5190 or 8260/8290 was the #1
seller.
· We believe these indicators along with Nokia's
continued success in 2.5G and 3G signal a
strong Q4. We also see Nokia's role as the
high-volume, low-cost vendor as a major
strategic advantage heading into what could be
a rocky economic situation in 2001.
· We believe that of all the wireless handset
manufacturers, Nokia is best positioned to
deliver upside in Q4. We reiterate our Strong
Buy.
Semiconductor Capital Equipment Industry
John Pitzer 415-836-6376
Quarterly Trip To Asia - Confirming Evidence
of 1H01 Downturn, Duration Uncertain, Still
Too Early To Buy. Lowering 2001 Capex
Growth and SCE Revenue and EPS Estimates
· Information flow in Asia acted as confirming
evidence. Since Intel pre-announced 3Q results in
September 2000, we have been cautioning
investors that the semiconductor industry was in
the midst of an inventory correction the depth and
breadth of which was perhaps more severe than
most realized. The impact of this inventory
correction would be a dramatic reduction in
capital budgets for capacity addition in 2001,
especially 1H01.
· Capital budgets will come down significantly over
the next several months. We are lowering our
growth assumptions for capital spending and
wafer fab equipment spending from 0% and 10%
to -10% and -5% respectively. Our lowered
assumptions are driven by a) Intel’s signal of
slowing capacity expansion at 8 inch, b) overly
optimistic 300 mm expectations by equipment
providers c) negative data points from Asia and d)
muted semiconductor growth.
· The next important timeframe will be mid
February - following the Asian holidays, we
suspect that companies will have a better
understanding of the extent of the current pause
period. Until then, we are lowering our revenue
and EPS estimates for our front-end companies
to reflect our new global growth assumptions.
· Despite significant valuation contraction and an
environment of lowering interest rates - it is too
early to buy. Despite the prospect of a fed driven
rally in stocks, our data seems to conclude that
SCE stocks are driven more by industry
fundamentals than interest rates. Our stocks
never bottom on the first pushouts and - WE
CONTINUE TO BELIEVE A BETTER BUYING
OPPORTUNITY WILL PRESENT ITSELF IN
1Q01.
2
Electro Scientific Industries (ESIO-$22.12-Cap $615 M-Buy)
John Pitzer, 415-836-6376
2QF01(Nov) Results Significantly Above Expectations. Remain Cautious Near-term as
Macro Fundamentals Continue to Deteriorate
FY01E: $3.48 [prior $3.35], FY01E: $1.95, Price Target: $50
· ESIO reported strong 2QFY01(Nov) results - EPS significantly above expectations.
Revenue and EPS were $136.6 million and $1.00 - inline with our revenue estimate of
$136.5 million and significantly above our $0.86 EPS estimate - street was $0.87. EPS
upside was driven by higher margins through both increasing ASPs and lower expenses.
· Capacitor equipment and memory repair continue to show strength - Top line growth was
again driven by strong increases in capacitor equipment (up 8% seq.) - the outsourcing trend
continues; and memory repair (up 21% seq) - driven by new applications in DSP and PLDs
which now represent over 25% of the segment.
· Still cautious near-term. Despite company guidance for flat to up revenues and flat gross
margins, we remain cautious near term as the macro environment continues to deteriorate
around the electronics supply chain. We are maintaining our F01(adjusted up to reflect 2Q
results) and F02 estimates at this time.
· Valuation looks compelling at today’s levels, but uncertainty likely to cap stock movement
near term. Significant backlog and a strong relative technology position lead us to maintain
estimates on ESIO despite a deteriorating macro outlook. Our numbers are still below
management guidance as we believe the next 1-2 quarters could be at risk. ESIO is currently
trading at 6.5X our CY01 EPS estimate of $3.37. Our $50 price target is 15X our CY01 EPS
estimate.
DigitalThink (DTHK-$10.31-Cap $0.4B-Strong Buy)
Gregory Cappelli 312-750-2907 / John Torrey 415-836-6306
DTHK Names New President; Management Move a Lot Like Asking A-Rod to Play
Shortstop on Babe’s Team
· After yesterday's close, DTHK announced that Jon Madonna, a current DTHK board
member, will become President of the company. Pete Goettner will continue to actively
serve as CEO and Chairman.
· Madonna, the former CEO of KPMG and Carlson Wagonlit, brings decades of executive and
operational management experience to DTHK's chief operational position. As President, we
expect Madonna will focus on the day-to-day execution of DTHK's strategic plan by its 450+
employees and global alliance partners.
· Move frees Goettner, who remains the strategic engine behind DTHK's growth, to focus on
high-level calls to customers (e.g., GE, Visa, Intuit, Circuit City, Cable & Wireless), prospects
and partners in the distribution of DTHK's mission-critical solutions.
· We regard the appointment of Madonna positively as it deepens DTHK's loaded
management bench to support growth expectations. Maintain STRONG BUY.
The Handoff: A Wireless Weekly
Marc A. Cabi/ Ray Sharma/ Tim Long
415-836-7701/ 8664/ 8626
The Battle of 2001: WCDMA gains ground on CDMA 2000
Featured This Week
· In our last wireless weekly of the year, we
explore the 3G standards battle between
CDMA 2000 vs. WCDMA. The evolution of
TDMA carriers away from the CDMA 2000
standard, decision by Mobile One and CHT to
scrap CDMA network plans, and Korea's recent
failure to award a CDMA 2000 license
highlights the growing momentum behind
UMTS/WCDMA.
News Highlights for the Week
· The first three days of the U.S. auction of
spectrum for wireless telephone and data
services drew $942 million, with AT&T Wireless
and Verizon making aggressive plays for
licenses in New York and Los Angeles.
· Chunghwa Telecom of Taiwan has canceled
plans to build a new US$1.5 billion CDMA
network in order to focus on improving its
competitiveness in the emerging mobile data
and wireless Internet sector, according to a
report in the Taipei Times.
· Nuance announced that Siebel Systems has
agreed to license its speech recognition
technology for the new Siebel 2000 family of
enterprise software.
TECHNOLOGY NEWS
· Reuters: Texas Instruments Inc. on Monday
unveiled a new all-digital sound system on a
hand-sized circuit board that it said will deliver
top-quality sound for hundreds rather than
thousand of dollars to small devices such as
portable CD players, personal computers and
car stereos.
CSFB Tech Daily Distribution
Contact jon.mano@csfb.com and specify: Your CSFB
Salesperson/ contact, current fax number if receiving
Tech Daily by fax, & preferred format for email
attachment: MS Word, Adobe Acrobat, or text-only
1
tolle ratings beim totentanz am lagerfeuer.
proxi
Jon Mano (212) 325-4530 www.tech.csfb.com
1
CTN 339.51 -10.38 -2.97%
RESEARCH UPDATE
Siebel Systems (SEBL-$78-Cap $39.7B-Strong Buy)
Brent Thill, 415-836-7712
Where the Next Opportunity Lies
· SEBL still remains the gorilla within the CRM market. But the growth in core U.S. enterprise
accounts is moderating more than most expect (apprx. 40% y/y and 15% seq growth in
Q3:00 vs 60%+ y/y and 20%+ seq in ’99).
· Primary growth engines reside in mid-market (400%+ y/y growth, 27% of total license up
from <5% last Q3) and international (261% y/y growth, 43% of total license). These two
engines have been responsible for accelerating growth rates.
· It appears U.S. enterprise accounts are digesting the first wave of major CRM applications,
leaving the door open for SEBL and other vendors to roundout the CRM vision with
additional applications. SEBL ’01 (spring product release) could provide the next catalyst.
· We believe these metrics highlight the issue of where we are in the lifecycle of CRM.
Solectron (SLR-$26.72-Cap $18.9B-Buy)
Mark Hassenberg/ Herve Francois, 212-538-4210/ 325-6187
As Growth and Profit Opportunities Expand Shares Decline
FY00A: $0.85 , FY01E: $1.00
· SLR reported strong results in F1Q’01 despite the slowdown in the PC and certain telecom
sectors exceeding consensus estimates.
· As the economy is slowing, SLR is benefiting from increased outsourcing and acq
opportunities and continues to gain market share.
· Networking (up 25% seq) and telecom (up 32% seq) continue to be the primary driver of
growth. Revenues should continue strong double digit growth as optical & new generation
wireless products ramp up in 2001.
· Nortel Networks acquisition leads to substantial gain of telecom revenues as percent of
sales. SLR’s position in Asia has been strengthened with the acquisition of Natsteel and
Sony. We expect Sony and NEL to substantially contribute to growth in the Feb qtr.
· Current valuation of roughly 20x CY01 cash EPS ignores the growth opportunities at SLR
stemming from accelerating business with telecom/datacom OEMs, successful acquisitions
and expansion in Asia. We are continue to rate SLR’s shares a Buy with a 12-month target
price of $52, up 95% from current levels.
Scientific-Atlanta (SFA-$39 15/16-Cap $6.7B-Buy)
Matyjaskiewicz/Parmelee, 212-325-6172/6191
Broadband Demand Concerns Prompt Unjustified Sell-off in SFA Shares; Reiterate BUY
FY00A $0.92; FY01E $1.60
· Recent pre-announcements have prompted concerns regarding the pace of broadband
rollouts and sparked a significant correction in SFA shares (down 34% in the past month vs.
20% for the telecom equipment group); Most recently, TERN’s pre-announcement yesterday,
indicated slowing industry demand trends as opposed to company specific issues.
· However, we would characterize TERN’s woes and AT&T’s capital spending slowdown as
primarily company specific as opposed to secular in nature; In fact, we remain upbeat
regarding the outlook for SFA’s digital set top business (53% of FQ1:01 sales) and believe
deployments are set to accelerate in C2001 driven by commercial rollouts of video on
demand (VOD); Moreover, our checks indicate the company continues to gain market share
in transmission (we estimate 10 percentage points in the last 4 qtrs);
· Project SFA is on track to meet our FQ2:01 $632.8M top line projection; Anticipate digital
set-top shipments in-line with our 1.1M forecast due to mfg capacity constraints; Potential
exists for modest upside to our $0.39 EPS forecast due to lower operating expenses. For
2001, we continue to view our set-top projection of 4.7M units as conservative and believe
the potential exists for upside to our transmission forecast of $826M based upon
international opptys, most notably with Callahan Associates in Germany.
· Following yesterday’s 12% decline SFA shares are currently trading at 23.3x our C2001 EPS
est, below its peer group average of 26.4x and our 3yr EPS growth rate of 30%; On a market
cap/C01 sales basis SFA is trading at 2.0x vs. an avg. of 2.7x for the Broadband Access
group; SFA remains our top pick in the broadband access segment due to strong industry
demand fundamentals, superb mgmt execution, and good visibility; Reiterate BUY.
Handspring (HAND-$45.50-Cap $6.7B-Buy)
Marc A. Cabi/ Ray Sharma, 415-836-7701 / 8664
Talk to the HAND 2000E CY($0.48) CY2001E ($0.33)
· Handspring announced that it has begun shipping its mobile phone module, VisorPhone.
· Although only expected to be shipped in low volumes, our checks indicate a strong interest
in VisorPhone. Additionally, our retail polls continue to indicate record demand across the
mobile device space.
· The entire Handspring product portfolio appears to be in high demand, with the Platinum and
Visor Deluxe estimated to be the best sellers, followed by Prism and Visor.
· With the lock-up expiration behind us, we believe that Handspring is an attractive investment
and we reiterate our BUY.
Nokia (NOK $45.5-Cap $218B-Strong Buy)
Marc A. Cabi/ Ian Burgess
415-836-7701/ +44 20 7888 0271
Nokia Channel Check Update
FY00E: $0.73 FY01E: $0.95
· Our most recent round of channel checks
reveals that wireless phones remain a hot gift
item for the Holiday season and confirms our
belief that Nokia is well positioned going into Q4.
· Our retail checks indicate that the Nokia 8200
and 5100 series are experiencing strong
demand throughout the US, with some locations
back-ordered for the 8260/8290. All AT&T
Wireless and VoiceStream locations polled cited
Nokia as their #1 selling brand and dependant
on store location and demographic area noted
that either the 5190 or 8260/8290 was the #1
seller.
· We believe these indicators along with Nokia's
continued success in 2.5G and 3G signal a
strong Q4. We also see Nokia's role as the
high-volume, low-cost vendor as a major
strategic advantage heading into what could be
a rocky economic situation in 2001.
· We believe that of all the wireless handset
manufacturers, Nokia is best positioned to
deliver upside in Q4. We reiterate our Strong
Buy.
Semiconductor Capital Equipment Industry
John Pitzer 415-836-6376
Quarterly Trip To Asia - Confirming Evidence
of 1H01 Downturn, Duration Uncertain, Still
Too Early To Buy. Lowering 2001 Capex
Growth and SCE Revenue and EPS Estimates
· Information flow in Asia acted as confirming
evidence. Since Intel pre-announced 3Q results in
September 2000, we have been cautioning
investors that the semiconductor industry was in
the midst of an inventory correction the depth and
breadth of which was perhaps more severe than
most realized. The impact of this inventory
correction would be a dramatic reduction in
capital budgets for capacity addition in 2001,
especially 1H01.
· Capital budgets will come down significantly over
the next several months. We are lowering our
growth assumptions for capital spending and
wafer fab equipment spending from 0% and 10%
to -10% and -5% respectively. Our lowered
assumptions are driven by a) Intel’s signal of
slowing capacity expansion at 8 inch, b) overly
optimistic 300 mm expectations by equipment
providers c) negative data points from Asia and d)
muted semiconductor growth.
· The next important timeframe will be mid
February - following the Asian holidays, we
suspect that companies will have a better
understanding of the extent of the current pause
period. Until then, we are lowering our revenue
and EPS estimates for our front-end companies
to reflect our new global growth assumptions.
· Despite significant valuation contraction and an
environment of lowering interest rates - it is too
early to buy. Despite the prospect of a fed driven
rally in stocks, our data seems to conclude that
SCE stocks are driven more by industry
fundamentals than interest rates. Our stocks
never bottom on the first pushouts and - WE
CONTINUE TO BELIEVE A BETTER BUYING
OPPORTUNITY WILL PRESENT ITSELF IN
1Q01.
2
Electro Scientific Industries (ESIO-$22.12-Cap $615 M-Buy)
John Pitzer, 415-836-6376
2QF01(Nov) Results Significantly Above Expectations. Remain Cautious Near-term as
Macro Fundamentals Continue to Deteriorate
FY01E: $3.48 [prior $3.35], FY01E: $1.95, Price Target: $50
· ESIO reported strong 2QFY01(Nov) results - EPS significantly above expectations.
Revenue and EPS were $136.6 million and $1.00 - inline with our revenue estimate of
$136.5 million and significantly above our $0.86 EPS estimate - street was $0.87. EPS
upside was driven by higher margins through both increasing ASPs and lower expenses.
· Capacitor equipment and memory repair continue to show strength - Top line growth was
again driven by strong increases in capacitor equipment (up 8% seq.) - the outsourcing trend
continues; and memory repair (up 21% seq) - driven by new applications in DSP and PLDs
which now represent over 25% of the segment.
· Still cautious near-term. Despite company guidance for flat to up revenues and flat gross
margins, we remain cautious near term as the macro environment continues to deteriorate
around the electronics supply chain. We are maintaining our F01(adjusted up to reflect 2Q
results) and F02 estimates at this time.
· Valuation looks compelling at today’s levels, but uncertainty likely to cap stock movement
near term. Significant backlog and a strong relative technology position lead us to maintain
estimates on ESIO despite a deteriorating macro outlook. Our numbers are still below
management guidance as we believe the next 1-2 quarters could be at risk. ESIO is currently
trading at 6.5X our CY01 EPS estimate of $3.37. Our $50 price target is 15X our CY01 EPS
estimate.
DigitalThink (DTHK-$10.31-Cap $0.4B-Strong Buy)
Gregory Cappelli 312-750-2907 / John Torrey 415-836-6306
DTHK Names New President; Management Move a Lot Like Asking A-Rod to Play
Shortstop on Babe’s Team
· After yesterday's close, DTHK announced that Jon Madonna, a current DTHK board
member, will become President of the company. Pete Goettner will continue to actively
serve as CEO and Chairman.
· Madonna, the former CEO of KPMG and Carlson Wagonlit, brings decades of executive and
operational management experience to DTHK's chief operational position. As President, we
expect Madonna will focus on the day-to-day execution of DTHK's strategic plan by its 450+
employees and global alliance partners.
· Move frees Goettner, who remains the strategic engine behind DTHK's growth, to focus on
high-level calls to customers (e.g., GE, Visa, Intuit, Circuit City, Cable & Wireless), prospects
and partners in the distribution of DTHK's mission-critical solutions.
· We regard the appointment of Madonna positively as it deepens DTHK's loaded
management bench to support growth expectations. Maintain STRONG BUY.
The Handoff: A Wireless Weekly
Marc A. Cabi/ Ray Sharma/ Tim Long
415-836-7701/ 8664/ 8626
The Battle of 2001: WCDMA gains ground on CDMA 2000
Featured This Week
· In our last wireless weekly of the year, we
explore the 3G standards battle between
CDMA 2000 vs. WCDMA. The evolution of
TDMA carriers away from the CDMA 2000
standard, decision by Mobile One and CHT to
scrap CDMA network plans, and Korea's recent
failure to award a CDMA 2000 license
highlights the growing momentum behind
UMTS/WCDMA.
News Highlights for the Week
· The first three days of the U.S. auction of
spectrum for wireless telephone and data
services drew $942 million, with AT&T Wireless
and Verizon making aggressive plays for
licenses in New York and Los Angeles.
· Chunghwa Telecom of Taiwan has canceled
plans to build a new US$1.5 billion CDMA
network in order to focus on improving its
competitiveness in the emerging mobile data
and wireless Internet sector, according to a
report in the Taipei Times.
· Nuance announced that Siebel Systems has
agreed to license its speech recognition
technology for the new Siebel 2000 family of
enterprise software.
TECHNOLOGY NEWS
· Reuters: Texas Instruments Inc. on Monday
unveiled a new all-digital sound system on a
hand-sized circuit board that it said will deliver
top-quality sound for hundreds rather than
thousand of dollars to small devices such as
portable CD players, personal computers and
car stereos.
CSFB Tech Daily Distribution
Contact jon.mano@csfb.com and specify: Your CSFB
Salesperson/ contact, current fax number if receiving
Tech Daily by fax, & preferred format for email
attachment: MS Word, Adobe Acrobat, or text-only
1
tolle ratings beim totentanz am lagerfeuer.
proxi
